FX.co ★ BoE Cuts Rates by 25 bps to 4.25%

The Bank of England has made the decision to reduce the Bank Rate by 25 basis points to 4.25% in May, with a close vote of 5–4, as was anticipated. Within the committee, two members advocated for a larger reduction to 4%, while another two preferred maintaining the rate at 4.5%. This outcome is indicative of continued progress in disinflation, as external disruptions have decreased and stringent policies have effectively stabilized inflation expectations. Since the middle of 2024, UK GDP growth has decelerated, accompanied by a softening labor market. The Consumer Price Index (CPI) inflation rate dropped to 2.6% in March, although a brief increase to 3.5% is anticipated in the third quarter due to previous spikes in energy prices. Following this temporary rise, inflation is projected to decline again. Although pay growth remains high, it is expected to decelerate. Global uncertainty has intensified owing to new US tariffs, which have dampened global growth and lowered market interest rate forecasts. The Monetary Policy Committee (MPC) remains steadfast in its commitment to sustainably bring inflation back to the 2% target. Future policy decisions will be contingent on the evolving risk landscape and inflation dynamics. Adopting a cautious, data-informed strategy for easing policy constraints continues to be the most prudent course of action.