Bank of England Cut Rates for Fifth Time to 4%

Source Credit : Portfolio Prints

London, August 7, 2025 — The Bank of England (BoE) announced a quarter-point reduction to its main interest rate, bringing it down to 4%, the lowest level since March 2023. This marks the fifth rate cut since August 2024, when the rate stood at a 16‑year high of 5.25%.

A Historic Decision

In a first for its 28‑year history, the Monetary Policy Committee (MPC) held a second round of voting to break a tie. The initial vote ended in a 4‑4‑1 split; external MPC member Alan Taylor then changed his stance, leading to a final 5‑4 majority in favor of the cut.

Economic Rationale & Outlook

• Inflation continues to run above the 2% target at 3.6% (June). The BoE attributes the rise to temporary spikes in food and energy prices and forecasts inflation to peak near 4% before gradually easing, with a return to target levels expected by mid-2027.


• Economic growth remains sluggish—GDP growth slowed to 0.1% in Q2 2025, with a modest rebound to 0.3% anticipated in Q3.


• Unemployment has increased to 4.7%, the highest in four years, indicating a loosening labor market.

Market Reaction

The rate cut had notable market implications:

• The British pound rose roughly 0.4–0.5% against the U.S. dollar.


• The FTSE 100 index declined, signaling investor caution amid economic uncertainties.


• Short-term gilt yields increased, reflecting sharp adjustments in bond markets

Policy Signal

BoE Governor Andrew Bailey emphasized the need for “gradual and careful” future rate cuts, recognizing the risks of adjusting policy too quickly. The central bank also highlighted growing inflationary uncertainty and emphasized that there’s no pre-set path for future monetary moves.

Looking Ahead

Markets are now speculating that the next possible rate cut could come as early as November, but with the heightened uncertainty and mixed economic signals, the BoE’s path remains cautious and data-dependent.

Summary Table

Key Element	Insight
Rate Cut	Reduced to 4%, fifth since August 2024
Voting Outcome	Historic split resolved via second vote: 5–4 in favor
Inflation Outlook	Running at 3.6%, peaking near 4%, with target alignment by 2027
Economic Indicators	Slowing growth (0.1% Q2), rising unemployment (4.7%)
Market Reaction	Pound up, stock index down, bond yields rising
Policy Tone	Cautious easing, no preset future path
Future Outlook	Another cut possible by November, but dependent on incoming data