Interest rates in the UK are expected to be cut to 4%, with a possible cut on August 7 despite inflation remaining above target. Markets anticipate a third rate cut this year amid weakening economic growth and a slowing housing market.

There is a 93.6% likelihood of a rate cut on August 7, with markets also expecting a fourth cut before the end of the year. The base rate could be lowered to 3.75%, 1 percentage point lower than at the start of the year. The most likely time for a rate cut is February 2026.

The UK economy faces uncertainty and unfavorable conditions, with disappointing GDP growth, rising unemployment, and a slowing housing market. Inflation remains above the 2% target, with a 3.6% year-over-year increase in June. The Bank of England is cautious about further rate cuts due to inflation.

Members of the Bank of England’s monetary policy committee have differing views on interest rates, with some pushing for lower rates and others concerned about cutting too quickly. The spread of opinion on the committee will be closely watched as the next decision approaches.

The terminal rate for interest rates in the UK remains uncertain, with predictions varying between 3.25% and 3.5% by 2026. Central banks globally are making their own decisions on interest rates, with the European Central Bank already cutting rates and the US Federal Reserve facing pressure to do the same.

Upcoming Bank of England meetings in 2025 are scheduled for August 7, September 18, November 16, and December 18. The November meeting will also include the final quarterly monetary policy report for the year, providing insights into the outlook for 2026 and beyond.

Read more at Morningstar: Will the Bank of England Cut Interest Rates on Aug. 7?