Bank of England Cuts Interest Rates to 4%, But Warns of Headwinds Ahead
On August 7, 2025, the Bank of England reduced its base interest rate by 0.25 percentage points to 4%, marking the fifth cut in just one year, the lowest level since March 2023.
A Tense Vote Marks the First Re-Vote Ever
What made this decision historic wasn’t just the rate cut, it was how narrowly it passed. The Monetary Policy Committee (MPC) was so divided that they held two votes for the first time ever. In the end, the motion passed by a razor-thin 5–4 margin. One member, Alan Taylor, had first pushed for a larger 0.5-point cut, but switched his vote during the re-ballot to secure the quarter-point reduction.
Why the Bank Remains Cautious
Governor Andrew Bailey described the decision as “finely balanced,” noting that while rates remain on a downward trajectory, any future cuts must be gradual and cautious.
Rising Inflation and Food Prices Cast a Shadow
The Bank’s outlook shows this isn’t the time to celebrate. Inflation, which hit 3.6% in June, is expected to peak at 4% by September, driven largely by surging food prices, from ingredients like coffee and chocolate to high packaging and labor costs.
The Bank warns that wage settlements above equilibrium could derail any further cut plans.
Economic Weakness Adds to the Pressure
It’s not just inflation, unemployment is ticking up, consumer confidence remains shaky, and the economy shrank in both April and May. Despite these headwinds, the Bank modestly raised its growth forecast to 1.25% for the year.
What This Means for You
Borrowers with tracker mortgages will benefit: monthly payments should drop immediately.
Savers, however, may feel the pinch: returns on easy-access or variable savings accounts could start to decline.