The Bank of England’s (BoE) next meeting to determine interest rates is on Thursday 7 August, and all eyes will be on the Monetary Policy Committee (MPC) and whether its members opt to continue lowering rates.
The base rate – currently at 4.25 per cent following cuts in February and May – impacts consumers and taxpayers through everything from their mortgages to savings, so what do experts foresee both next week and beyond?
Will interest rates be cut?
Almost definitely yes – in fact it would be quite the shock at this stage if not.
We have been seeing the MPC opt for a quarterly rate this year, in line with governor Andrew Bailey’s constant refrain of “gradual and careful”. The BoE chief did say as recently as last month he still sees a downward trend, too.
This week, markets were pricing in an 97 per cent chance of a rate cut despite inflation data for June coming in at 3.6 per cent – hotter than expected and a real headache usually to the question of rates cuts.
As well as the domestic situation, we’ve had more uncertainty in 2025 over Donald Trump’s tariffs, businesses dealing with higher labour costs coming into force and escalated tensions after Israel’s strike on Iran led to a brief oil price scare.
As such, most analysts expect the MPC’s August decision to be a split vote, but resulting in a cut in the Bank Rate (to give it the official term) to 4.00 per cent.
Barclays analysts predict a three-way split between a cut (four votes), a hold (two votes) and a bigger 50bp per cent cut (two votes) down to 3.75 per cent.
“Markets almost fully priced in an interest rate cut this week, so focus will lie not so much on the decision itself as on the precise split of the votes from the interest rate committee, and on the forecasts for inflation and growth in the accompanying economic report,” explained AJ Bell’s Laith Khalaf.
“Of course, if the Bank of England chooses not to cut rates, there will be a sizeable backlash in the bond markets. But that seems unlikely on this occasion.”
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It’s worth remembering that for mortgages in particular, many products are priced using future expectations of the interest rate, so changes in that market can already be accounted for.
For savers though, whether or not an immediate cut to variable rates is coming, it’s always worth checking the best offers on the market to make sure your money is earning as much as it can for you – or, over the longer term, looking to invest.
Influential factors around cuts
The MPC has nine members and their votes decide if the base rate is cut, raised or kept the same.
Among the factors MPC members will have been looking at are job and wages data, the level of inflation across the UK, economic growth and also external factors which can impact the UK.
Inflation data came in higher than expected in June at 3.6 per cent, through food and transport costs particularly. Higher inflation is a reason to keep interest rates up, as it can discourage businesses from investing in new projects or hiring – which in turn raises earnings and spending power. Therefore, fewer jobs or pay hikes means the opposite: lower spending power, lower demand, helping stem further price rises.
Recent key data has shown salary growth slowing and unemployment rising – these are factors which can see interest rates decrease and that looks likely to be a deciding factor this time.
What about the rest of 2025?
Many analysts still expect two rate cuts between now and the end of 2025, this one in August and another in November, to bring the base rate down to 3.75 per cent.
Deutsche Bank’s chief UK economist, Sanjay Raja, believes future cuts will depend almost entirely on the jobs market. “Is an August rate cut in jeopardy? No, we don’t think so,” he said. “There’s enough of a slowdown in GDP and the labour market to warrant a ‘gradual and careful’ easing of monetary policy. But the onus now rests on the labour market to shape how far and how fast the MPC can cut this year and next.”
