Expectations for further rate cuts in UK in 2025, uncertainty about when cuts will stop

From Morningstar: 2025-06-24 07:15:00

After the latest meeting on June 19, there are now just four Bank of England monetary policy meetings left in 2025. Financial markets still expect interest rate cuts in August and November 2025, taking rates to 3.75%, maintaining quarterly rate cuts. UK inflation remains above target, with uncertainty about when interest rate cuts will stop and at what level.

Eurozone rates at 2% may be close to the “terminal rate” after successive cuts, compared to 5.25% in the UK. Bank of England wants to see sustained inflation control before halting rate cuts. UK inflation is higher at 3.4% than in the eurozone at 1.9%, with inflationary pressures from rising oil prices and tax increases.

Bank of England’s interest rate path is not preset. The Bank maintains a “gradual and careful” approach to monetary policy. Focus is on UK inflation data, wage growth, and services inflation. Expectations for further rate cuts in 2025 are mixed, with some experts calling for caution due to rising inflationary pressures.

Investors expect two more rate cuts in the second half of 2025, leaving rates at 3.75% by year-end. The voting pattern of the MPC suggests a split on future rate cuts. Swaps data for 2026 meetings shows no rate cuts expected, but this may change. Predictions vary on where UK interest rates will end up.

Industry experts have divergent views on future rate cuts after the June meeting. Some suggest further cuts are warranted due to labor market conditions, while others predict a rate hold in August. The UK economy faces challenges from tariffs, inflation, and global uncertainties, influencing the Bank’s monetary policy decisions.

Central banks across Western economies have differing approaches to inflation and interest rates. The US has the highest rates at 4.25-4.50%, while Switzerland faces deflation and the possibility of negative interest rates. The European Central Bank and the Swedish Riksbank have rates at 2.25% and 2%, respectively, showing a range of monetary policy actions.



Read more at Morningstar: Will the Bank of England Cut UK Interest Rates…