UK Monetary Policy - part.1

Over the past two weeks, the Bank of England (BoE) has continued its cautious approach to monetary policy amid ongoing economic challenges. On August 7, 2025, the Monetary Policy Committee (MPC) reduced the Bank Rate by 0.25 percentage points to 4.00%, marking the fifth rate cut since August 2024. This decision was narrowly approved, with a 5–4 vote, reflecting internal divisions over the pace of easing. The BoE's latest Monetary Policy Report projects inflation to peak at 4% in September before gradually returning to the 2% target by mid-2027.

Despite the rate cut, inflationary pressures remain a concern. In July, the UK's annual consumer price inflation rose to 3.8%, driven by significant increases in food and airfare prices. This uptick has dampened expectations for further rate cuts in the near term. The BoE has also highlighted the potential impact of the Extended Producer Responsibility (EPR) scheme on food price inflation, which could further complicate its policy stance.

Looking ahead, the BoE faces a delicate balancing act. While the economy shows signs of slowing, with second-quarter GDP growth at 0.3% and weakening consumer spending, inflation remains above target. The MPC's next scheduled meeting is on September 18, 2025, where policymakers will reassess the economic landscape and determine the appropriate course of action.