The Bank of England maintained its key interest rate at 4.25% on 19 June 2025, marking yet another measured pause in its monetary easing cycle. This decision, approved by a 6–3 majority, saw three members advocating for a 25‑basis‑point reduction, a signal the central bank remains alert to the growing fragility of the labour market. Governor Andrew Bailey emphasised persistent global uncertainty, from Middle East tensions to unpredictable trade dynamics, that continues to cloud the economic horizon and justify a cautious approach.
Signs of domestic weakness were evident. Wage growth cooled to around 5%, unemployment climbed to its highest level since May 2021, and employment figures saw the sharpest payroll contraction since mid-2020. Such trends reinforce the view that inflationary pressures, particularly from wage-driven cost rises, may ease in due course, supporting the case for eventual rate cuts.
Yet inflation remains elevated – now around 3.4–3.5%, fuelled in part by surging energy and food prices amid geopolitical unrest. This persistent above-target inflation has led the Monetary Policy Committee to continue its “gradual and careful” policy trajectory, wary of prematurely loosening financial conditions.
Market expectations align with this cautious stance, anticipating the first rate cut in August, followed by a potential second by year-end, bringing rates down to approximately 3.75%. However, any shift in global energy costs, trade disruptions, or inflationary shocks could prompt the BoE to revise its timetable.
In balancing slower economic momentum with stubborn inflation, the BoE is navigating a narrow path. The decision to hold at 4.25% demonstrates resolve to avoid policy whiplash while keeping policy space open as domestic indicators, particularly labour market developments, guide future action. For financial services firms, this means preparing for a modest easing cycle, starting possibly in late summer, while staying vigilant to global headwinds.
