On August 7, the UK’s central bank trimmed its benchmark interest rate from 4.25% to 4%, its fifth cut since August 2024. At first glance, it looked like business as usual. But behind the curtain, the decision exposed an extraordinary split inside the Monetary Policy Committee (MPC) — so sharp that it took two rounds of voting to break the deadlock.
In round one, the MPC was stuck in a rare 4:4:1 standoff:
One member, Alan Taylor, pushed for a bolder 50 basis point cut.
Four members, including Deputy Governor Clare Lombardelli and Chief Economist Huw Pill, wanted no change at all.
The remaining four, led by Governor Andrew Bailey, backed the now-approved 25 basis point trim.
The tie forced a second vote, where the cut squeaked through at 5–4 — a razor-thin win that shows just how conflicted the BoE is between tackling slowing growth and stubborn inflation.
Adding to the intrigue, the BoE quietly dropped its old phrase “policy remains restrictive” from its statement, swapping it for “with the rate cut, the restrictiveness of monetary policy has decreased.” Markets read this as a hint that the current rate-cutting streak could soon pause — a blow to Prime Minister Keir Starmer and Chancellor Rachel Reeves, who have been counting on easier policy to fire up the economy.
Meanwhile, the UK economy isn’t painting a pretty picture:
Two straight months of decline
Unemployment climbing to 4.7% — the highest in four years
Inflation at 3.6%, expected to hit 4% in September
BoE now forecasting a return to the 2% inflation target only by Q2 2027 — three months later than earlier estimates
The markets barely flinched, with GBP/USD holding steady, a sign traders had already priced in the move. Analysts say the road ahead hinges on hard data — especially inflation trends and jobs numbers.
If weakness persists, most see another cut coming in November. But 2026 could bring only one or two more reductions, leaving rates parked between 3.25% and 3.5%.
This wasn’t just a rate cut — it was a glimpse into a central bank wrestling with itself, while the UK economy teeters between recovery and risk.