The Bank of England has voted to hold interest rates at 4.25% for June, citing ongoing global uncertainty, persistent inflation, and rising geopolitical risks in the Middle East as reasons for caution. The Monetary Policy Committee (MPC) voted 6-3 in favour of maintaining the current rate, with Deputy Governor Dave Ramsden joining external members Swati Dhingra and Alan Taylor in backing a 0.25 percentage point cut.
The decision, which aligned with expectations in a Reuters poll of economists, comes amid signs of a softening UK labour market and concerns that renewed conflict in the Middle East could push up energy prices. The committee acknowledged that these developments, while not decisive in June’s vote, will be closely monitored in the months ahead.
“Interest rates remain on a gradual downward path,” said Bank of England Governor Andrew Bailey, though he emphasised that future cuts are not guaranteed. “The world is highly unpredictable. In the UK we are seeing signs of softening in the labour market. We will be looking carefully at the extent to which those signs feed through to consumer price inflation.”
The central bank maintained its guidance that further cuts would be taken “gradually and carefully”, reinforcing the message that it is not on a predetermined path. Markets are currently pricing in two additional quarter-point reductions by the end of the year, with the Bank Rate expected to reach 3.75% by December 2025.
The Bank’s updated economic projections were largely unchanged, forecasting inflation to peak at 3.7% in September before averaging just under 3.5% in the second half of the year. Growth is expected to reach 0.25% in the second quarter, a slight improvement over the May forecast, though underlying momentum remains weak.
Elsewhere, global monetary policy showed further signs of loosening. The Swiss National Bank unexpectedly cut rates by 25 basis points to zero, citing receding inflationary pressures, while Norway’s central bank also reduced its policy rate by 25 basis points to 4.25%, its first cut since 2020.
Meanwhile, the US Federal Reserve and European Central Bank are also signalling divergent approaches. The Fed, which held rates steady at 4.25%–4.5% on Wednesday, revised its 2025 growth forecast downward while raising its inflation outlook. The ECB, having cut rates more aggressively than its UK counterpart, is now expected to make only one more reduction this year.
The Bank of England also softened its tone on the likely economic impact of President Donald Trump’s proposed trade tariffs, suggesting the disruption may be less damaging than earlier feared. Still, the Bank warned that trade uncertainty remains a drag on the UK’s recovery.
As markets digest the latest guidance, all eyes now turn to the Bank’s next meeting in August, when a potential rate cut could finally materialise—provided inflation continues to ease and energy markets stabilise.
