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Published 15.09.2025

The Bank of England’s Monetary Policy Committee (MPC) went into the summer balancing two imperatives: cementing the disinflation trend and avoiding an unnecessarily tight stance as activity indicators softened. In May, the Monetary Policy Committee (MPC) lowered Bank Rate to 4.25%, then in June voted 6–3 to hold at that level, with a minority preferring to take another step. By early August, the Monetary Policy Committee (MPC) had the confidence to move again, reducing Bank Rate to 4.0% as evidence accumulated that inflationary pressure in services was easing and slack was opening in the labour market. The sequence reads like a central bank edging toward neutral while keeping a firm eye on second-round effects.

What the data said, and why it mattered

Headline Consumer Price Inflation (CPI) slowed to 3.4% year-on-year in May, in line with prior guidance that inflation would be sticky rather than plunging, but trending in the right direction. Core and services components, which the Monetary Policy Committee (MPC) has repeatedly highlighted, showed tentative cooling, and energy base effects ceased to dominate the story in quite the way they did in 2023. That backdrop made it easier to move from a stance of “on guard” to “moving carefully,” provided wage dynamics cooperated.

The labour market, for its part, sent a clear if still nuanced signal. The unemployment rate nudged up to roughly 4.6% in the three months to April, the highest since mid-2021, and a raft of indicators pointed to slower hiring and a decline in vacancies compared with last year. While pay growth remains elevated by pre-pandemic standards, the direction has been downwards, and the jobs data now lean toward easing rather than overheating. For policymakers anxious about persistence, that combination undercut the case for a prolonged pause.

Activity data were hardly roaring. The first quarter was robust, but April’s monthly GDP fell, leaving the three-month change still positive at 0.7% yet signalling that some strength had been borrowed from later in the spring. By July, ONS’s rolling three-month growth measure had slowed toward 0.2%, consistent with a muddling-through economy rather than a surge. Purchasing managers’ indices reflected that texture: services in expansion, manufacturing languishing, pricing power ebbing as firms reported weaker scope to pass on costs. None of this screams emergency. It does, however, justify taking policy down from restrictive peaks as long as the inflation path cooperates.

The June hold that set up the August cut

The June decision to hold at 4.25% was a classic central-banker’s hedge. A majority preferred to see a little more evidence that services inflation and wage growth were decisively slowing before moving again. A sizeable minority judged that the balance of risks already warranted a cut to 4.0%. That split telegraphed to markets that barring an upside surprise, the Monetary Policy Committee (MPC) was leaning toward easing later in the summer. By the time the Committee reconvened in August, the weight of data had shifted enough to align the majority with the doves.

What the cut means for mortgages and savings

For mortgage borrowers, the August move lowers the reference point, but transmission is uneven. Fixed-rate borrowers remain tied to the terms they locked in, and lenders tend to move gradually as they price in the broader outlook for rates and funding costs, not just the headline cut. Variable and tracker products respond faster, though even here, banks have been cautious given competition for deposits and regulatory expectations around capital. Savers, meanwhile, have enjoyed the most generous rates in over a decade, and while best-buy accounts may edge down, they are unlikely to collapse in step with every policy move; the deposit market has been shaped as much by competition and liquidity needs as by Bank Rate itself. The cut therefore eases pressure rather than transforming household finances overnight. The Bank’s path from here will decide whether this becomes a trend or a tweak.

Why the Bank still sounds cautious

Even at 4.0%, policy is not loose. The Monetary Policy Committee (MPC)’s communication has continued to stress the risk of persistence, particularly in domestically generated inflation, and to reinforce that decisions are data-dependent. In practice, that means officials need to see disinflation continue through the autumn, wage settlements drift lower, and inflation expectations stay anchored. Surveys of the public’s medium-term expectations have ticked up at times this year, and while such measures are noisy, the Monetary Policy Committee (MPC) is alert to the risk that they harden at a level inconsistent with target. That is one reason forward guidance has shied away from anything like a pre-set path of cuts.

The gilt market and the QT subplot

One under-appreciated part of the story is balance sheet policy. As headline inflation cooled and the base rate began to fall, a parallel debate intensified over the pace of quantitative tightening. Former Monetary Policy Committee (MPC) members and City voices urged the Bank to ease off active bond sales to avoid amplifying government borrowing costs, arguing for a bias toward passive runoff instead. The Bank has not tethered rate moves to QT decisions, but the optics matter: a gentler path on QT can complement rate cuts by softening the financial conditions channel, especially if gilt yields are sensitive to supply. None of this substitutes for inflation control, but it does help explain the care with which Threadneedle Street has staged its journey.

What could derail further easing

Risks run both ways. On one side, global energy markets remain a wild card, and any renewed spike would lift headline Consumer Price Inflation (CPI) and complicate the calculus. On another, services inflation could prove stickier if productivity disappoints and wage growth settles at a level inconsistent with the two per cent target. Domestic housing dynamics might also re-tighten financial conditions without any help from the Monetary Policy Committee (MPC) if lenders become more conservative or if policy uncertainty around property tax reform chills sentiment. The summer housing prints were mixed, with some lenders reporting annual price growth around two per cent in June and official Land Registry data still catching up. Neither a boom nor a bust, the market nonetheless feeds into the consumer mood and, ultimately, into the Bank’s risk assessment.

What would support more cuts

If headline inflation keeps easing, services price growth cools further, pay growth decelerates, and unemployment edges up without spiking, the case for a gradual sequence of additional cuts strengthens. Markets will watch the monthly Consumer Price Inflation (CPI) details for signs that food inflation is stabilising, energy pass-through is waning, and rents are no longer accelerating. They will also parse each labour market release for vacancies, redundancy rates and pay settlements. A steady improvement across those lanes would let the Bank move from a reactive to a more predictable easing bias, though officials will be keen to avoid fuelling a perception that they are targeting activity rather than inflation.

Where policy likely settles

It is too early to declare victory, but the destination now looks closer to a neutral range than to the restrictive stance of 2023–24. The Monetary Policy Committee (MPC)’s own communications have emphasised that the journey will be guided by realised data, not by calendar dates. If inflation proves more stubborn, the Bank can pause at 4.0% or even reverse. If it glides toward target with wage growth cooling, a careful path lower becomes the base case. Either way, the Bank appears to believe it can continue to disinflate without engineering a deep downturn, a delicate balance that requires growth to muddle through rather than stall. The GDP profile through mid-summer supports that hope, but it does not remove the need for vigilance.

The takeaway for households and firms

For households, the summer shift means relief, not release. Mortgages should get a little easier at the margin; savings rates will remain attractive by recent standards even if they ebb. For firms, the cost of capital is lower than it was at the peak, but not yet cheap, and pricing power is weaker as demand normalises and competitors resist increases. The Bank is trying to land the plane with as little turbulence as possible. The strategy is working for now because inflation is drifting down and growth is neither too hot nor freezing. That can change quickly, which is why the Bank is moving one meeting at a time and one cut at a time.