Key Takeaways
- The Bank of England (BoE) has cut its benchmark interest rate to 4.0% from 4.25%, a decision reached by a narrow 5-4 vote after an initial three-way split among policymakers.
- BoE Governor Andrew Bailey affirmed that interest rates are "definitely still on a downward path" but stressed that the "path of rates has become more uncertain," warning against cutting rates "too quickly or by too much."
- Deputy Governor Clare Lombardelli highlighted that food inflation is "higher than BoE expected" and that "food prices to carry on rising," playing a "key role in inflation expectations."
- Markets are now pricing in approximately 20 basis points of further BoE easing by year-end, a reduction from around 27 basis points anticipated earlier.
- US Treasury Secretary Scott Bessent confirmed that the interview process for the Federal Reserve Chair has begun, and projected that US tariff revenue could exceed $300 billion by the end of 2025.
The Bank of England's Monetary Policy Committee (MPC) has opted to reduce the benchmark interest rate by 25 basis points to 4.0%, marking the fifth cut in this easing cycle. This decision, however, was not unanimous, requiring a second vote after an initial 4-4-1 split among the nine-member committee, with Deputy Governor Clare Lombardelli among those who initially voted to keep rates on hold.
Governor Andrew Bailey stated that while "rates are definitely still on a downward path," the "path of rates has become more uncertain," emphasizing the need for a "gradual and careful approach" to future rate cuts. Bailey noted that his vote was "not motivated by concerns about a recession risk" and that the BoE has "changed our view on the activity outlook very little since May." However, he acknowledged that "risks to inflation shifted to upside" and that "second-round effects may delay return to target." Deputy Governor Lombardelli specifically pointed to food inflation being "higher than BoE expected" and foresees "food prices to carry on rising," playing a "key role in inflation expectations." The BoE now forecasts CPI inflation to peak at 4.0% in September.
In the United States, Treasury Secretary Scott Bessent provided updates on key economic and policy matters. Bessent confirmed that the interview process for the Federal Reserve Chair has already commenced. He also highlighted the administration's trade policies, projecting that annual tariff revenue could exceed $300 billion by the end of 2025. Bessent added that President Donald Trump holds "deep respect for the Federal Reserve as an important institution" and stated that Trump "will not fire Chair Powell." Separately, President Trump called for Intel's CEO's resignation due to alleged conflicts.
Regarding the broader economic outlook, Governor Bailey noted that "employment growth is weak" and "consumers have been more cautious than we expected." He anticipates a "gradual normalisation of pay growth to feed through to lower services price inflation" but cautioned against higher food and energy prices leading to "any second round effects on wage or price setting." Markets have adjusted their expectations for BoE easing, now pricing in approximately 20 basis points of further cuts by year-end, down from around 27 basis points previously. The British Pound (GBP) strengthened following the BoE's rate cut announcement, reaching its highest level against the US Dollar (USD) in about two weeks.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.