The Bank of England cut UK interest rates by 25 basis points to 4%, the third cut this year despite inflation at 3.6%. The decision was reached by a narrow majority of five to four. The move was prompted by worrying labor market data and stagnant GDP growth, aiming to stimulate the economy.

UK inflation hit 3.6% for the 12 months to June 2025, well above the Bank of England’s 2% target. Inflation is expected to peak at 4.0% in September before falling back towards the 2% target. The Bank remains alert to the risk of temporary inflation increase affecting wage and price-setting processes.

There is a significant chance of further rate cuts in November, with predictions of rates dropping to 3.75%. Some economists predict three more cuts over the next year, aligning UK rates with European levels. This consensus for rate cuts is supported by MPC members, including Bank of England governor Andrew Bailey.

Read more at Morningstar: Bank of England Cuts Interest Rates Again