As expected, the Bank of England’s Monetary Policy Committee moved to cut interest rates today—albeit cautiously—lowering the base rate from 4.5% to 4.25%. There was however a split in the voting 7-2 so it wasn’t unanimous.
With markets pricing in an interest rate cut, the real question was one of magnitude, and today’s 25bp move signals a measured shift in the BoE’s stance as inflation cools. Latest data showed UK inflation at 2.6% in the year to March – although the hikes to consumer bills in April is expected to feed through into higher numbers next time the ONS reports data.
The Bank’s decision comes just hours after the Federal Reserve opted to hold rates steady, while warning of stagflation risks—a sign that central banks remain on high alert.
Wealth managers and investment strategists have been quick to react, offering insights into how this latest interest rate move could shape asset allocation, stock selection decisions in the weeks and months ahead.
George Brown, Senior Economist, Schroders said: “Today’s decision came as no surprise to anyone. But going forward, the Bank of England has far less scope to cut rates than the market currently expects. “While Trump’s tariffs will provide some marginal relief through lower goods prices, the fundamental issue for the UK is that it continues to face considerable capacity constraints. As such, inflation looks set to rise again later this year as a result of disappointing productivity and sticky wage growth. To our minds, this is consistent with the Bank only taking interest rates as low as around 4% this rate-cutting cycle.”
Bank of England cuts rates, may go further in coming months says – Jeremy Batstone-Carr, European Strategist, Raymond James Investment Services as he comments: “As anticipated, the Bank of England’s Monetary Policy Committee has cut the base rate by 0.25%, in a unanimous decision driven by March’s falling CPI inflation and employment data confirming the cooling of hiring intentions last month.
Falling oil and gas prices and the relative strength of the pound against the dollar provided further ammunition for today’s rate cut. While pockets of price pressures remain, the Bank is confident enough in the deflationary impact of tariffs and downside risks to the growth outlook to lower interest rates for the first time since February.
As important for hard-pressed British households and businesses as today’s decision is, the Bank is cautiously signalling it is likely to go further in coming months, looking past the strong likelihood that near-term inflationary pressures are likely to rise. Lower rates are coming, but it may be autumn before the ‘Old Lady’ feels confident enough in the outlook to ease borrowing costs again.”
Lindsay James, investment strategist at Quilter said: “The Bank of England has opted to cut interest rates to 4.25%, with seven members of the MPC voting to lower rates in a sign of strong agreement around the threat to growth imposed on the UK economy by Trump’s tariffs. Indeed, two members wanted to go further and bring rates down to 4%, suggesting more drastic action is being considered as economic growth is forecasted to have stalled, although it should be noted two members opted to leave rates unchanged so the unanimity expected by the market is not there just yet.
“With the cut having been widely anticipated by markets, investors will focus now on the likelihood of a successive cut in June, seen to be in the balance in the run up to today’s meeting. Investors are betting on three further rate cuts this year as rising risks to growth look likely to supersede inflationary threats in the coming months.
“Although we are yet to see the impact on inflation from April’s hike to employer’s National Insurance contributions and national minimum wage, it is expected that much of this will be passed on to consumers through one-off price rises. Offsetting that however is the impact of falling energy prices, with the Energy Price Cap predicted to fall by around 9% in July, although we will see a rise in inflation for the third quarter due to prior energy price increases. Nevertheless, there is also the possibility that certain Chinese goods previously destined for the US may now find their way to the UK market, pulling down goods inflation in the process. The government desperately wants consumer confidence to return and will be hoping this rate cut can help turn the tide against the pessimistic economic outlook, especially if a lid can be kept on inflation.
“However, the UK and global economy remains in a period of hiatus as we await the outcome of a 90 day pause in reciprocal tariffs. With the UK and US expected to announce some sort of trade agreement, any retaliation from UK is now firmly off the cards. This removes one risk for the MPC in terms of the effect that would have on prices, however with the universal 10% tariff likely to remain in place for the UK, it could also be a case of damage limitation. With further threats on the expansion of tariffs to sectors such as the film industry, it is a reminder that Trump will happily shift the goalposts and make any kind of forward planning for the UK government or businesses next to impossible.”
Freddy Colquhoun, Investment Director, JM Finn, commented: “In light of its 25bps cut today, the Monetary Policy Committee (MPC) states it is not following a pre-set path, remaining sensitive to heightened unpredictability. Despite divisions among MPC members, with two advocating for a 50bps (Dhingra as expected), the surprise came from Mann who voted to hold. The Committee admits there is a greater risk from global trade arrangements, and this could have a more deflationary effect on the UK. Alongside this, the MPC forecasts inflation to be at 3.5% in Q3 2025, before it starts to decline, and GDP growth will slow sharply in Q2 2025 to 0.1%, with risks skewed to the downside. This cut is as expected, but the report suggests a more dovish policy might be needed moving forward, and markets may expect a larger cut at its next meeting.”
Rathbones’ Stuart Chilvers sees the BoE decision as a slight hawkish surprise to expectations saying: “Our initial read of the Bank’s decision today is that it’s a slight hawkish surprise to market expectations. Whilst we got the 25 basis points cut that the market was fully pricing, we think the voting split and the details within the minutes were more hawkish than market participants had expected. Whilst we had two MPC members vote for a 50bps cut, we think expectations were that at least one member would vote for a 50 basis points cut, given historic voting. However, we don’t believe markets were expecting the two votes for no change in interest rates, and we think it is particularly notable that one of those who voted to leave rates unchanged was the Chief Economist. Furthermore, we saw guidance maintained that we should expected a gradual and careful approach to interest rate cuts, and it was notable that of the five members who voted to reduce rates by 25 basis points, most had judged this policy decision would be finally balanced between no change and a 25 basis points cut prior to the latest global developments – again we think this is more hawkish than market expectations.”
Commenting on the decision, Abhi Chatterjee, Chief Investment Strategist at Dynamic Planner said:
“The Bank of England cut rates by a quarter point today to 4.25%. This news did not come as a surprise, though what did was the split of votes – five members supporting 25bps cut, two members favouring a larger cut, while two favouring rates to remain where they are. With inflationary pressures easing on one hand but increasing uncertainty due to Trumpian policies, the Chairman was quick to stress a “gradual and careful approach” to further reductions.
“This will come as a relief to homeowners, who are refinancing as it has an immediate impact of lending rates. But there is a school of thought that could look at this action from the central bank as hawkish, signalling softer growth going forward. While this hypothesis may be compelling, would it imply that it could change the speed with which rates are trimmed? An argument would be that growth is a greater priority for the British economy which would require a greater push not only from the cross border trade deals being made with India, EU and the US, but also larger than anticipated fiscal loosening.”
Steve Ryder, senior portfolio manager at Aviva Investors, has also commented on today’s BOE decision saying:
“As was widely expected today the BOE reduced interest rates by 0.25% and lowered their growth and inflation projections, with inflation now forecast to undershoot their target over the next two years. We expected a cautious commitment to further easing due to the uncertainty around the NIC impact. Instead, the statement was undeniably more hawkish with the main surprise being the vote split with two members calling for unchanged rates, and one calling for a 0.50% cut.
Our base case has been for quarterly cuts into the summer before more clarity on inflation and activity data slowing would open up a scenario for the BOE to move to sequential cuts. The US trade tariff announcement has now increased the uncertainty for the UK and today’s statement has reduced the chance of a consecutive cut in June. We still see the risks to activity data as to the downside and therefore a lower terminal rate than is currently priced. We maintain our overweight to short-dated UK rates and a preference for curve steepeners.”
Luke Bartholomew, Deputy Chief Economist, at Aberdeen said;
“No surprises in the Bank’s decision to cut interest rates by 25bps. But the Monetary Policy Committee is clearly very divided on how policy should respond to the many shocks currently hitting the economy, with a three-way split in the voting pattern. This is highly unusual and will make it hard for the Bank to send a clear signal to the market about the likely path of policy. But with the Bank maintaining its guidance that further cuts will be “gradual and careful”, the chance of another cut in June probably have fallen significantly.
We still think the Bank will cut rates at least twice more later this year, but much like the Fed’s message yesterday, UK policy makers will want to see more data on how tariffs and domestic tax increases are being digested by the economy before moving decisively. Bailey may face questions about the UK-US trade deal, but its impact on monetary policy is likely to be relatively modest, even if it may help to further support risk sentiment.”
Zara Nokes, Global Market Analyst at J.P. Morgan Asset Management (JPMAM), says: “The Bank of England’s decision to cut rates today came as no surprise. The economic engine is sputtering as the UK contends with a double whammy of domestic tax increases alongside trade headwinds emanating from Washington. Business confidence has deteriorated sharply as a result and, crucially, cracks are now showing in the labour market.
“While a trade deal with the US may provide some relief, a still uncertain global backdrop will continue to act as a drag on UK activity. The Bank should, however, be mindful of signalling an aggressive pace of rate cuts ahead given the elevated uncertainty around how inflation will evolve over the coming months. Inflation is set to have spiked in April as firms pass on higher employment costs to consumers and a number of price resets come into effect. One would expect a cooling labour market to take some of the heat out of inflation over the course of the year but until there is concrete evidence of this, the Bank should maintain a degree of caution.”
Michael Metcalfe, Head of Macro Strategy, State Street Markets, said:
“As a slow growing open economy with a large current account deficit, the UK is especially vulnerable to further shocks to global trade. The BoE’s cut today is attempting to get ahead of the potential downside risks to growth, but with two MPC members dissenting and coming, as it does, at a time when hopes of a trade deal with the US are rising, any negative impact on Sterling should be modest. Meanwhile the fact the committee was content to keep quantitative tightening at its current pace reinforces the message they are unperturbed by the recent volatility in long-dated bond yields.”
Daniel Casali, chief investment strategist at wealth management firm Evelyn Partners, comments: “While the macro picture has changed since the last Monetary Policy Committee (MPC) meeting in February to become more disinflationary, the BoE appears focused on cutting interest rates at a gradual pace of around one-quarter percentage point per quarter since it began easing last August.
“This decision came before any details on the UK-US trade have emerged, and indeed the devil will be in that detail. But this rate cut, alongside the news that the UK is the first country to strike a US trade deal, coming hot on the heels of the India agreement, will doubtless help the Government to paint a more optimist picture for the UK economy.
“Serious challenges of course remain and US trade tariff and general policy uncertainty still suggest downside risks to growth, a point made by the BoE governor Andrew Bailey at an Institute of International Finance event in Washington last month. Indeed, the latest PMI data indicates weak manufacturing and services sector activity. Subpar growth is feeding through to softer inflation data.
“Furthermore, energy prices have also been trending south: the price of Brent crude oil is down nearly 30% from a year ago, while sterling appreciation against the US dollar should also act to reduce import prices somewhat. All these factors should put ease inflationary pressure in the near term.
“Nevertheless, MPC members will be wary of cutting interest rates too quickly, with three issues in mind.
“First, it is not clear what impact US trade tariffs will have on inflation. Second, the latest nominal weekly earnings for the whole economy of 5.6% year-on-year (on a three-month moving average) is running uncomfortably higher than prevailing inflation. And finally, the latest YouGov survey of household inflation expectations has picked-up to 4%, its highest rate since October 2023.
Bottom line. Looking forward, the MPC is expected to stick to gradual and careful guidance on interest rates by cutting once a quarter, as the risk of policy error remains high. Nevertheless, gradually lower rates should provide some insurance against downside risks to the economy and UK domestic stocks.
Ed Monk, Associate Director, Fidelity International comments on the Bank of England’s decision to cut rates for the second time this year: “Today was another step downwards for rates and is likely to be followed by a few more before the year is out.
“Ahead of the announcement, the bond markets were pricing in four quarter point cuts by January 2026 – the cut today means there are three left in 2025 if the forecasts come to pass. The fact that two MPC members voted for a half-point cut suggests the momentum for rate cuts is building.
“The announcement of US trade tariffs last month provided downward pressure on rates. Tariffs complicate the picture for central banks. On the one hand they are likely to be inflationary, making it harder for them to lower rates as inflation comes under control. Yet, they are also likely to slow down growth, taking momentum out of economies.
“Markets appeared to be betting on tariffs prompting central banks to lower rates more quickly to ease economic conditions. Investors will now be watching to see if the announcement of progress of a US/UK trade deal changes that picture. Even ahead of that news, the Bank asserted that the UK would not feel any slowdown as badly as other economies.
“Falling rates have been changing investor behaviours. Fidelity’s recent polling of investors showed that one in three (29%) is planning to more money from cash savings to investments in an ISA this year. This trend may well accelerate as rates begin to fall more quickly and cash returns dip.”
William Marshall, Chief Investment Officer, Hymans Robertson investment Services says:
“The Bank of England (BoE) continued to signal a gradual approach to cutting interest rates on Thursday. The 0.25% cut to rates was widely anticipated. Surprisingly though, two members of the MPC voted to keep rates unchanged (two other members also voted for a 0.5% cut). Some investors also thought the Monetary Policy Committee (MPC) may remove the word ‘gradual’ from their guidance on interest rate reductions – they have not. Both of these signals have reduced the probability of a June rate cut.
“The inflation data over the past few months has been better than the BoE’s February forecast. Inflation is still expected to increase in the short term, but this will mainly be government-set and indexed price hikes, like mobile phone contracts, that tend to be inflation-linked. Additionally, the labour market is putting less upward pressure on inflation with lower-than-expected wage growth.
“The uncertainty caused by Donald Trump’s tariff policies added an additional consideration – with the chaos that has subsequently ensued sure to slow the UK’s economic growth prospects. That said, the latest GDP data for the UK was actually pretty decent, showing 0.5% growth in February. This may have led some members of the MPC to err on the side of caution and hold rates again.
“The guidance from the MPC was seen as hawkish i.e. expecting fewer interest rate cuts. As a result, we saw gilt yields rise after the announcement, despite the interest rate cut.”
Patrick O’Donnell, Senior Investment Strategist, Omnis Investments on UK rates:
“The BoE has been in a pretty tricky position for quite a while now. Finding the balance between above target, persistent inflation, which is widely forecast to increase in 2025 and lacklustre growth is not easy. The tariff announcements in April and the increase in policy uncertainty have made their downside scenario more severe, due to the impact on global growth. The market pricing for this meeting hasn’t changed that much in three months, fully discounting a 25bps move today. The median economist estimate was for 8 members to vote for a 25bps move and 1 member to vote for 50bps. The actual voting split today had a more dovish skew. At the margin this will help UK markets. Risk sentiment is relatively buoyant today anyway. Of course it remains to be seen how long it lasts, with volatility expected to remain for the foreseeable future.”
Mathieu Savary, Chief European Strategist at BCA Research comments: “Today’s vote split shows a Bank of England still unwilling to declare victory on inflation, despite the 25bps rate cut. The MPC is signalling it needs clear proof of softer growth and cooling wage gains before cutting again. We expect tighter credit, weaker global demand, and a loosening labour market to provide that proof in the second half, bringing further cuts into view and capping sterling’s rebound.”
