Interest Rates Set to Slide? Bank of England Hints at Bold Cuts

Bank of England (BoE) policymaker Alan Taylor has warned that the UK’s hoped‑for "soft landing" could be in jeopardy.

Speaking at the ECB summit in Portugal, he highlighted growing evidence of weaker demand and increasing trade disruptions.

According to Taylor, this raises the case for five interest‑rate cuts in 2025, rather than the four markets had anticipated, potentially taking Bank Rate down to around 2.25% by late 2026 in a downside scenario.

Taylor has backed rate reductions in five of his seven votes on the Monetary Policy Committee (MPC). These include a 0.5 percentage‑point cut in May and a 0.25‑point trim in June. He also flagged an “integer problem” – the MPC only meets eight times a year, which limits the precision of policy adjustments.

The Bank Rate currently (at the time of writing) stands at 4.25%, following the June decision, settled by a 6–3 MPC vote.

UK growth is slowing—GDP contracted by 0.3% in April, unemployment is nudging higher, and inflation remains elevated at 3.4% in May.

The BoE has emphasised a “gradual and careful” policy stance in response to persistent inflation and global uncertainty.

Outlook Ahead

Most economists expect two further quarter‑point cuts this year—one in August, another later in 2025—reducing rates to around 3.75%.

Taylor argues these forecasts fall short; he prefers a more assertive easing pathway with five cuts in 2025 to reach between 2.25–2.75% by late 2026.

Governor Andrew Bailey supports a cautious approach, highlighting labour‑market softness but warning that inflation dynamics and global risks, including energy prices and trade tensions, still weigh heavily.

Mortgages: Prospects for lower rates could ease monthly payments—but the MPC’s next moves will determine the timing.

Savings: While interest‑earning accounts may stay attractive in the short term, careful cuts may follow later in the year.

Business investment: A more accommodative policy could support hiring and capital spending—if inflation stays under control.

Taylor is clearly concerned that a gradual approach won’t be enough if downside risks materialise. With the next MPC decision due in August, all eyes are on whether the BoE will respond with swifter cuts—or hold back amid global uncertainties.

Source: GB News