Published: 03 August ‘2025. The English Chronicle Online
The Bank of England appears set to deliver its fifth interest rate cut within a year as economic turbulence, rising joblessness, and fresh protectionist trade measures from the United States mount pressure on policymakers. City analysts and financial markets are forecasting a quarter-point reduction in the base rate, bringing it down to 4% when the Bank’s Monetary Policy Committee (MPC) meets this Thursday.
If confirmed, the move will mark a full reversal to the interest rate level last seen in March 2023, as the central bank tries to stave off a deeper economic downturn. With the UK economy shrinking by 0.1% in May following a 0.3% contraction in April, economists are warning that the country may be teetering on the edge of a technical recession. Much of the slowdown has been linked to global economic jitters, particularly the uncertainty surrounding Donald Trump’s renewed tariff regime, which has begun to cast a long shadow over UK trade prospects.
The chancellor, Rachel Reeves, is likely to view the anticipated cut as a welcome development. A lower interest rate will reduce mortgage repayments for millions of households and ease borrowing costs for small and medium-sized enterprises, many of which are still grappling with the aftershocks of the post-pandemic economic cycle and rising input costs. However, the move also underscores the challenges facing the government as it attempts to balance growth ambitions with the need to rein in public spending before the autumn budget.
A string of recent data paints a worrying picture of the UK’s economic health. The national unemployment rate has climbed to 4.7%, the highest since mid-2021, with the number of job vacancies now dipping below pre-pandemic levels. Simultaneously, business investment remains sluggish, partly due to the impact of extra corporate taxes introduced in last year’s budget and now fully implemented.
The international backdrop further complicates matters. Although the UK has secured a trade agreement with the United States capping most tariffs at 10%, President Trump announced last week that a new wave of import tariffs of up to 50% would apply to some trading partners, potentially hampering global demand and growth. The International Monetary Fund recently downgraded the UK’s economic outlook, forecasting near-flat growth of just 0.1% for both the third and fourth quarters of 2025, with a modest recovery to 0.3% quarterly growth anticipated in 2026.
The MPC’s decision will also be influenced by lingering inflation concerns. The latest figures show the Consumer Prices Index (CPI) climbing by 3.6% in the year to June—well above the Bank’s 2% target. While headline inflation has eased from last year’s peaks, certain categories, particularly food, have surged unexpectedly. Basic items such as meat and butter have seen significant price hikes, defying forecasts and feeding into broader consumer inflation expectations, a metric the MPC closely watches when assessing the risk of inflation persistence.
According to Matt Swannell, chief economic adviser at the EY Item Club, the job market has shown clear signs of strain, and wage growth has slowed faster than anticipated. Yet, despite the overall weakness in the economy, internal division within the MPC is expected. “Signs of lingering price pressures will mean the committee remains cautious,” Swannell noted. “Two of the hawkish members are expected to favour no change in rates this month.”
The Bank of England will also publish updated economic forecasts on Thursday, which are likely to be less optimistic than previously projected. The spectre of stagflation—low growth coupled with elevated inflation—continues to loom, presenting policymakers with one of the most difficult economic environments in recent memory.
While a rate cut may offer short-term relief, it also reflects a deeper unease within Threadneedle Street. The task now is to navigate a fragile recovery, restore confidence in the UK’s economic trajectory, and withstand external shocks while ensuring inflation does not once again spiral beyond control. All eyes will be on the MPC this Thursday—not just for its verdict on rates, but for its outlook on the nation’s uncertain economic future.
