The Bank of England (BOE) reduced its benchmark interest rate by 25 basis points to 4.50%, marking its first rate cut since late 2024 while the MPC minutes revealed a more dovish split than expected.
Analysts had expected to see an 8-1 vote in favor of a 0.25% cut, but the transcript of their policy meeting indicated that the call to ease was unanimous and that two MPC members actually wanted to lower rates by 0.50%.
Key Takeaways:
- Bank Rate lowered to 4.50% from 4.75% as expected
- Two members (Dhingra and Mann) voted for a larger 50bp cut
- BOE expects inflation to spike to 3.7% in Q3 2025 before returning to target
- Committee signals “gradual and careful” approach to future rate cuts
Link to Bank of England Monetary Policy Statement and MPC Minutes (February 2025)
The official statement noted that, while domestic price pressures are moderating, policymakers are wary of external factors such as higher global energy costs that could push overall inflation much higher in the first half of this year.
In addition, the minutes indicated that policymakers discussed the latest round of U.S. tariffs announced by the Trump administration a few days back, as well as the response of its trade partners, adding that “this was a rapidly evolving situation, which it would be monitoring closely.”
More dovish members calling for a larger immediate reduction to borrowing costs cited “the subdued outlook for demand remained consistent with CPI inflation staying sustainably at the target in the medium term despite the expected near-term uptick in regulated prices.”
In their quarterly Monetary Policy Report, BOE officials reiterated that inflation is following a bumpy path but is expected to fall back to target later in the year and that global shocks from trade tariffs add to the uncertainty.
Link to Quarterly BOE Monetary Policy Report
The Committee also assessed that GDP growth has been weaker than anticipated, with business and consumer confidence declining. However, the labor market, while easing, is judged to be “broadly in balance.”
Market Reaction
British Pound vs. Major Currencies: 5-min
Overlay of GBP vs. Major Currencies Chart by TradingView
Sterling, which had already been edging lower leading up to the BOE decision while market participants braced for a “dovish cut,” saw an even steeper tumble after the announcement.
Not only did more MPC members vote to lower rates, but two policymakers – including formerly hawkish member Catherine Mann – also called for a more aggressive easing move.
From there, GBP pairs chopped around in the hour following the BOE statement and MPC minutes, staying in bearish territory versus the much stronger JPY but paring some of its losses against USD, CHF, and EUR as the session went on.
