The Bank of England Monetary Policy Committee (MPC) voted, with an initial 4-4-1 split, to cut the Bank Rate by 25 basis points (bp) to 4.00%; four members voted for no change, while one pushed for a larger 50bp cut. Although a rate cut had been widely anticipated, the unusual balance of votes highlights growing divergence within the MPC and adds complexity to the outlook for future decisions.
MPC members were asked to vote a second time. The key policymaker was external member Alan Taylor who had initially voted for a 50bp cut, prompting Governor Andrew Bailey to call a second vote for the first time in the Bank’s history, resulting in a 5-4 majority in favour of a 25bp cut.
Economic growth remains subdued, with Bailey stating that the decision to cut rates for the fifth time since August last year was “finely balanced”, and that “any future rate cuts will need to be made gradually and carefully”. The Bank is balancing the risk of inflation overshooting its forecasts against the risk of growth undershooting, resulting in a complex and uncertain situation where it “remains important we do not cut the bank rate too quickly or by too much”. This suggests that the MPC may continue to alternate between holding and cutting over the next couple of meetings (which are on 18th September and 6th November).
UK inflation rose to 3.5% in Q2 2025 due to higher energy, food, and regulated prices, with a peak of 4.0% expected in September before falling back toward the 2% target. Wage growth remains high but is slowing, and services inflation has been stable. Economic growth is subdued, with rising unemployment and some slack in the economy, though trade policy uncertainty has eased slightly.
This action stands in contrast to the US Federal Reserve’s recent decision to hold rates steady amid sticky inflation and mixed economic signals, although some commentators have stated that a weakening US labour market and easing inflation could prompt rate reductions in the coming months. Attention now turns to the ECB’s next policy announcement in early September.
The view from the Bank’s Agents in the latest MPC report flagged continued weakness in manufacturing. Most firms reported subdued demand, low investment intentions, and growing caution about the global outlook. Confidence in the sector remains muted, with only defence and aerospace standing out as areas of sustained growth.
Exports tell a similar story: demand from the Eurozone is soft and overall growth in overseas orders is limited. The ongoing uncertainty has weighed heavily on business investment, particularly in capital and intermediate goods. With few expecting a near-term turnaround, flat or falling output remains the base case across much of the sector.
You can access the Monetary Policy Report on the Bank of England website at https://www.bankofengland.co.uk/monetary-policy-report/2025/august-2025; by scrolling down to the report section of this page, you can use the side menu to jump to the section on the Agents’ update on business conditions (box F). The minutes of the MPC meeting are published at https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2025/august-2025.