More interest rate cuts on the cards for the UK later this year
The Bank of England’s MPC voted to cut interest rates by 25 basis points to 4% on Thursday (7 August), but it might just be the first of several cuts planned for the rest of the year.
This is the view of Jake Finney (Senior Economist at PwC), who notes that the 5-4 voting split amongst committee members shows how finely balanced the decision was, but the direction of travel is still clear.
“We anticipate one or two additional cuts this year, most likely in November and December, as the Bank proceeds with its cautious easing cycle that its forward guidance states will be ‘gradual and careful,” he said.
“The devil, as ever, is in the details. The statement that ‘monetary policy is not on a pre-set path’ underscores the Bank’s data-dependent stance and signals that future rate cuts cannot be taken for granted.”
This caution is understandable given the Bank’s own forecasts show inflation could rise to 4% in September, double the 2% target, Finney said.
“Alongside the rate decision, the bank made modest adjustments to its forecasts. It acknowledged that inflation has proven marginally stickier than anticipated, while the labour market has loosened more quickly, with wage growth declining further.
“Crucially, the medium-term outlook for the UK remains broadly unchanged. That matters because it’s the medium-term picture that will shape the Chancellor’s choices ahead of the Autumn Budget,” Finney said.
An eye on inflation
One key area to watch is inflation. Twelve-month CPI inflation increased to 3.5% in 2025 Q2, owing to developments in energy, food and administered prices. Pay growth remains elevated, but has declined further recently, and is still expected to slow significantly over the rest of the year. Services consumer price inflation has been broadly flat over recent months.
The MPC said it continues to be vigilant about the extent to which easing pay pressures will feed through to consumer price inflation.
“CPI inflation is forecast to increase slightly further to peak at 4.0% in September. Inflation is expected to fall back thereafter towards the 2% target, although the Committee remains alert to the risk that this temporary increase in inflation could put additional upward pressure on the wage and price-setting process.
“Overall, the MPC judges that the upside risks around medium-term inflationary pressures have moved slightly higher since May.”
