BoE lowered its benchmark Bank Rate by 25 basis points to 4.25% , in line with market expectations. However, the decision revealed a rare three-way split among policymakers.
Five members supported the 25bps reduction, while Catherine Mann and Chief Economist Huw Pill voted to keep rates unchanged. On the dovish end, Swati Dhingra and Alan Taylor backed a deeper 50bps cut.
In its accompanying statement, BoE reiterated that a “gradual and careful approach” remains appropriate as it withdraws monetary restraint.
While acknowledging progress on inflation, the central bank emphasized the need for policy to stay “restrictive for sufficiently long” to ensure inflation returns sustainably to the 2% target.
In its latest Monetary Policy Report, the BoE’s baseline forecast sees CPI inflation rising to 3.5% in Q3 2025 before easing back to 2% in the medium term.
But policymakers outlined two risk-laden alternative scenarios. The first, a lower demand scenario, assumes heightened uncertainty depresses domestic spending and inflationary pressures fade more quickly. Under this path, the economy faces a wider output gap and inflation runs -0.3% lower than baseline by the three-year horizon.
Conversely, the second scenario envisions higher inflation persistence, where near-term rise in headline inflation triggers second-round effects in wages and prices, compounded by weak productivity growth. In this case, the impact on growth is modest, but inflation runs 0.4% above baseline throughout the forecast period.
