Bank of England poised to slash rates amid UK economic slowdown

Bank of England poised for fourth rate cut, eyes growth and inflation forecasts

Key interest rate forecast stands at 4.0 percent after the scheduled quarter‑point drop, raising questions over the Bank of England’s outlook on economic expansion and inflation.

Policy deliberations amid tariff and market uncertainty

• Weak economy signals point to a contraction in May and a near four‑year high unemployment rate of 4.7 percent, partly driven by a business tax hike and the impact of U.S. tariffs.
• Inflation surprise shown a jump to a 18‑month high in June, with the Consumer Prices Index rising to 3.6 percent as fuel and food prices remained elevated.

Monetary Policy Committee splits

While the majority of the nine MPC members, including Governor Andrew Bailey, are inclined toward the quarter‑point cut, analysts anticipate a division: some may call for a larger reduction and others could favor no change.

Bank of England’s rate‑cut cycle

Fifth cut during a trimming cycle that began in August 2024 illustrates the BoE’s “gradual” approach, aiming to keep Britain’s annual inflation rate at the 2.0 percent target.

External risks and global policy context

• U.S. Federal Reserve stance kept rates unchanged last week despite political pressure to lower borrowing costs.
• European Central Bank outlook expects to keep rates unchanged, but tariff effects could alter the eurozone’s inflation dynamics.
• Middle East conflict risks presented risks to the UK’s financial stability, while the BoE warned of tariff unpredictability.

With the BoE likely to trim borrowing costs by a quarter point to 4.0 percent, focus shifts to potential changes in the central bank’s economic growth and inflation outlooks, highlighting the importance of monitoring the evolving international trade environment and its impact on economic policy decisions.