There was no surprise in the August decision of the Bank of England, which, as expected, decided to lower the interest rate. Voting shows, however, a considerable dilemma of dissidents who, on the one hand, see the inflation and weakness of the British economy in recent months.
The Monetary Policy Committee (MPC) of the Bank of England decided to reduce the reference interest rate by 25 PB. up to 4 percent The decision to cut was made by a 5 to 4 votes, but it was the result of a second vote. Initially, four members were in favor of cutting the foot by 25 PB, one behind the cut by 50 PB, and four were in favor of keeping the foot of 4.25 percent.
The decision itself was consistent with market expectations, but the distribution of votes surprised with strong support for maintaining the current level. It was assumed that only two members of MPC could vote for a lack of cutting. Difficulties in reaching the agreement meant that for the first time in history the Committee for the Monetary Policy had to conduct two votes on interest rates, informs Reuters.
“The restrictiveness of monetary policy dropped with a decrease in the interest rate of the central bank,” it was written in a statement after the meeting, but not stately that the policy is still restrictive. It was repeated that there was no predetermined reference foot path.
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It was the fifth MPC meeting this year and the third reduction of interest rates, after in February bankers also cut their feet by a quarter of a percentage point. At the meeting in March this year they left the interest rate at an unchanged level. Then in May they cut their feet by 25 pb. In June a pause was made again.
The reductions in this cycle began in August 2024, when the cost of the loan was reduced by 25 PB. In September last year, feet were left unchanged. In October, the committee did not gather. In November, feet were cut by 25 PB. We had a pause in December. To sum up, in the current cycle Bank England cut feet by 125 PB.
Inflation and poor economy are a key problem. Inflation remains much above the goal of the Bank of England of 2 percent. In June 2025, inflation (CPI) increased to 3.6 percent, from 3.4 percent In May and it turned out to be higher than Boe expectations.
The base CPI index also increased to 3.7 percent, with the inflation of services persistent at a high level of 4.7 percent, reflecting strong price pressure on the domestic market. Inflation is expected to be an average of 3.4 percent. In 2025, it will fall to 2.6 percent. in 2026 and will reach 2 percent. at the end of 2026.
The Bank of England forecasts that CPI inflation will continue to grow slightly, reaching a top of 4.0 percent. In September, after which it will start in the direction of the target of 2 percent, it was announced in a message.
“The committee remains vigilant at the risk that this temporary increase in inflation may cause additional pressure on the process of shaping wages and prices. In general, MPC estimates that the risk of growth of inflationary pressure in the medium period has increased slightly since May,” reads the Bank of England.
Meanwhile, economic growth was weaker than expected. The economy shrunk by 0.3 percent. in April and 0.1 percent In May, i.e. with little opportunities to meet the forecast of the Bank of England at the second quarter of 0.25 percent. According to Bloomberg's estimates, the second quarter ended with an GDP increase of only 0.1 percent.
The Economy of Great Britain is struggling with slow growth, a poor situation on the real estate market and a decrease in enterprise's trust. There is also a gradual increase in unemployment to 4.7 percent. towards forecasted 4.6 percent and inhibiting wage growth dynamics, which he slowed down in May (data from mid -July) in the private sector to 4.9 percent, compared to 5.3 percent in April.
The next MPC meeting is scheduled for September 18, 2025, and the next on November 6. According to the plan, the last decision of the Bank of England this year will be made on December 18.
