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The Bank of England will announce its interest rate decision on Thursday, June 19 at 15:00 (GMT+4), as it continues its cautious stance on its monetary policy. With the UK economy facing slow growth and persistent inflation, insights will be given by BOE Governor Bailey on how the central bank will proceed regarding interest rates.
As wage growth continues to fall with the labor market weakening, these factors could support expectations of further monetary policy easing.
The Central Bank’s Approach To Rate Cuts
The Bank of England has been in a cautious stance when approaching interest rates, with only 4 rate cuts since August 2024, bringing interest rates down to 4.25%.
Markets are pricing in a rate hold, with a possible qaurter-point reduction in August and the possibility of another one in Q4 2025. This approach indicates concerns on persistent inflation, which still remains well above the BOE’s target. ⁽¹⁾
Like their counterparts at the Fed, policymakers at the BOE worry that a pickup in inflation driven changes in government policy may prove long-lasting. This was due to households and businesses have only recently experienced a burst of inflation that they were initially told would be transitory but proved not to be.
During their May meeting, the MPC voted 5-4 to lower interest rates by 25 basis points, which reveals different opinions among policymakers. Two members, Swati Dhingra and Alan Taylor pushed for a 50-basis point cut, while Huw Pill and Catherine Mann pushed for a rate hold. The other policymakers pushed for a small cut due to US tariffs, which impacts the BOE’s decisions. ⁽²⁾
Economic Slowdown and Labor Market Weakness
Britain’s economy slowed sharply in April, with official figures showing it shrank by the most since 2023, despite expanding by a stronger-than-expected 0.7% in the first three months of this year. ⁽³⁾
Output in April was hit by the end of a tax break on house purchases and the initial impact of Trump’s tariffs. British goods exports to the United States dropped to their lowest in more than three years after a record 2 billion pounds ($2.71 billion) monthly fall. ⁽⁴⁾
The labor market also showed signs of weakness, with the unemployment rate reaching its highest level since 2021 at 4.6% and company payrolls have shown the biggest decline in 5 years in May. Higher taxes on employment and minimum wage hike have pushed up labor costs despite a slowdown in wage growth. The data could support expectations of rate cuts. ⁽⁵⁾
Persistent Inflation and Global Developments
The UK CPI came in at 3.4% in April, higher than March’s 2.6%, driven by an increase in energy prices of 6.4%. The BOE expects inflation to peak at 3.5% in Q3 2025, and forecasts inflation could decline back to its 2% target around 2027. However, BOE policymakers are concerned that persistent inflation could lead to a rise in wages, which could keep inflation elevated. ⁽⁶⁾
Global events add uncertainty. Tensions in the Middle East have caused oil prices to surge, as it could lead to disruption in production and supply chains which could impact the BOE’s outlook on inflation.
Trump’s tariffs and the UK-US trade deal, which included lowering tariffs on UK cars and aerospace goods are factors in the central bank’s decision. While the US-UK deal was signed on Monday at the G7 summit, there are still issues regarding tariffs on aluminum and steel. ⁽⁷⁾
Future Outlook
The BOE is expected to keep rates unchanged on Thursday despite the weak data, although an August rate cut might be on the table. The BOE ‘s decision with its future guidance will be monitored by the markets with a press conference after the announcement of the decision where BOE Governor Bailey will speak and offer insights.
