Bank of England Slashes Interest Rates to 4% Amid Tight Vote and Economic Worries

Bank of England Cuts Rates: A Delicate Balancing Act

Surprise hit the markets on August 7, 2025, as the Bank of England’s Monetary Policy Committee (MPC) voted narrowly—just 5 to 4—to slash the base interest rate by 0.25 percentage points, landing it at 4%. This move wasn’t a given. The split within the MPC showed some members are still deeply worried that the UK economy isn’t out of the inflation woods yet.

So, why the sudden turn toward easier policy? The UK’s jobs market has started looking shaky, especially in private sector employment. After a run of resilient hiring since the Covid recovery, recruiters started pulling back. Data from May and June signaled a slowdown in new jobs, with private companies reporting fewer hires and more cautious hiring budgets. Stories are emerging of large firms in manufacturing and retail quietly freezing new positions—something we haven’t seen in nearly three years.

Why Cut Rates When Prices Are Still Rising?

Here’s where things get tricky. Inflation in Britain is still stubborn—not spiraling, but not calming down as much as hoped. June’s consumer price index (CPI) sat at 3.6% year-on-year, staying well above the Bank’s 2% target. If you strip out energy and food (the so-called core inflation rate), prices are still climbing at 3.7% a year. What’s fueling this? Look no further than the UK inflation issue with services—think everything from haircuts and insurance to lawyers and hotels. Service prices jumped by 4.7%, a painful pace considering most of these costs are baked in annually, not tweaked month to month.

Inside the Bank’s meeting room, the debate was heated. Some MPC members argued that cutting rates could stoke more spending and possibly worsen price pressures. But supporters of the rate cut pointed to signals that wage growth has started to cool and stressed that the economy needs more breathing room, or else risk a downward spiral of weak business confidence and rising unemployment.

Recent wage agreements, especially in the public sector, have started to cap pay rises. Retailers are also feeling squeezed by shoppers holding back, and house prices have barely moved for the last few months. The MPC minutes revealed that some officials worry about the "risk of over-tightening"—raising rates (or keeping them high) for too long could choke growth right as the global economy loses steam.

• Bank rate now stands at 4%, marking the lowest point since late 2023.
• Headline and core inflation remain above target, with services inflation especially sticky.
• Private sector job growth has clearly cooled, hinting at broader economic weakness ahead.
• The MPC will watch wage trends and inflation figures closely before making further moves.

Not all central banks are moving the same way. The U.S. Federal Reserve, for example, kept rates steady last month, still warning about inflation. But officials in Threadneedle Street feel the math is tipping—risks from a weaker jobs market now balance the risk of inflation staying too high.

Don’t expect any sudden moves. The Bank of England flagged that it’s watching closely for signs that inflation expectations are moving, or if wage growth starts to take off again. For now, though, Britain’s central bankers are betting a modest rate cut is the right play—hoping to spark growth just as other headwinds gather.