Bank of England Set to Begin Rate Cuts as Inflation Eases
The Bank of England is poised to lower its benchmark interest rate from 4.5% to 4.25% this Thursday, marking the first rate cut since it began its aggressive tightening cycle in response to post-pandemic inflation.
The decision, led by the Monetary Policy Committee (MPC), reflects a notable shift in strategy as policymakers acknowledge slowing inflation and softening economic indicators.
A Pivotal Shift in Monetary Policy
The anticipated quarter-point cut comes amid growing market expectations that multiple rate reductions could follow over the next 12 months. According to analysts cited by the Financial Times, the MPC may be preparing for a series of cuts, possibly bringing the base rate down to 3.5% by the end of 2025. That would mark a full percentage point decline from the 5.25% high reached during last summer’s inflation peak.
This move would represent a significant deviation from the Bank’s previously stated intention to proceed cautiously. In February, officials signaled a “gradual and careful” approach to easing borrowing costs. However, the rapid cooling of inflation and mounting pressure from financial markets have seemingly accelerated the Bank’s timeline.
Inflation Falls Faster Than Forecasted
The UK’s inflation rate dropped to 2.6% in March, beating expectations and coming in well below the MPC’s earlier forecasts. This surprise decline is helping justify a more dovish stance, especially as the central bank weighs risks to growth against its inflation target.
Andrew Bailey, the Bank’s Governor, has warned about external threats to UK economic stability, particularly the fallout from U.S. trade policies. The ongoing trade conflicts, driven by the administration of former U.S. President Donald Trump, have been blamed for contributing to global market volatility and creating uncertainty for British exporters.
While these international headwinds persist, the domestic picture is improving. GDP growth outperformed expectations in early 2025, giving policymakers more confidence to pivot toward rate relief. Still, not all concerns have vanished.
Labour Market Still Running Hot
Wage growth remains elevated, with average earnings rising 5.9% in the three months to February. Although the job market is beginning to show signs of cooling, high pay growth continues to pose a challenge to the MPC’s inflation outlook. Nevertheless, the overall labour market softening has helped offset fears of a supply-driven inflation spiral.
Economists are split on just how far the Bank will go. A Reuters poll suggests the benchmark rate might bottom out at 3.75% by year’s end, signaling a cautious, but increasingly proactive, path toward monetary easing.
Market Eyes on June and Beyond
Market participants are already looking beyond this week’s decision. Some believe the MPC could hint at another rate cut as early as June, especially if inflation continues to trend downward and the economy avoids a sharp contraction.
Jack Meaning, an economist at Barclays, notes that while the committee may avoid making firm commitments this week, they’re likely to “open the door” to more aggressive easing. If current trends persist, a summer rate cut could be a foregone conclusion.
Kosta Gushterov
Reporter at Coindoo
Kosta has been a part of the team since 2021 and has solidified his position with a thirst for knowledge, incredible dedication to his work and a “detective-like” mindset. He not only covers a wide range of trending topics, he also creates reviews, PR articles and educational content. His work has also been referenced by other news outlets.
