The Bank of England (BOE) held its Bank Rate unchanged at 4.25% in June, as widely expected.
However, the vote split revealed more dovishness than anticipated, with three of nine Monetary Policy Committee (MPC) members voting for an immediate 25 basis point cut to 4.0%.
Governor Andrew Bailey maintained that “interest rates remain on a gradual downward path” but emphasized the world is “highly unpredictable,” citing escalating Middle East tensions and rising oil prices as key concerns.
The central bank expects inflation to remain around 3.5% for the remainder of 2025 before falling back toward the 2% target next year.
Link to Bank of England Monetary Policy Statement (June 2025)
Key Takeaways:
- BOE held at 4.25% with a 6-3 vote (three wanted to cut to 4.0%)
- Bailey signaled the easing cycle could resume in August
- Inflation seen peaking at 3.7% in September before drifting lower
- Services inflation remains stubborn despite some improvement
- Oil prices are up 26% since May due to Israel-Iran tensions
- Underlying growth is soft, and the labor market continues to cool
- BOE sticking with a “gradual and careful” approach to cuts
The BOE’s latest assessment shows broad weakness across key parts of the economy. They expect GDP to grow just 0.25% per quarter for the rest of 2025, with underlying momentum still looking soft despite some noisy monthly data.
The labor market is showing more signs of cooling, with unemployment on the rise and job vacancies falling back to pre-pandemic levels. This softer jobs picture should lead to slower wage growth through the rest of the year, which may help bring down services inflation that is still stuck around 4.7%.
Even so, the recent jump in energy prices driven by Middle East tensions adds a layer of upside risk to the inflation outlook.
Link to MPC’s June meeting minutes
Market Reaction
British Pound vs. Major Currencies: 5-min
Overlay of GBP vs. Major Currencies Chart by TradingView
Sterling, which had been gaining bullish momentum in early European trading, slipped broadly at the BOE’s split vote. But the pound quickly regained ground and went back to its pre-event levels about an hour after the release.
The muted response suggests the outcome was mostly baked in, with traders already bracing for a possible cut in August. The slightly dovish vote added some weight, but Bailey’s steady tone helped balance things out.
Markets are still pricing in two more cuts this year, keeping the pound rangebound for now as traders look ahead to incoming data and global headlines.
