BoE approved a 25bp rate cut with a 5-4 vote; two members dissented, favoring no change

As anticipated, the Bank of England (BoE) reduced the Bank Rate by 25 basis points to 4.25%, citing easing inflationary pressures. The BoE intends to maintain a "gradual and careful approach" to further monetary easing, given the unpredictable global economic environment. Within the Monetary Policy Committee (MPC), Swati Dhingra and Alan Taylor advocated for a larger 50 basis point cut, while Catherine Mann and Huw Pill voted to hold rates steady. The majority of MPC members who supported the 25 bp cut attributed their decision primarily to global trade tensions, w hile the others saw a cut as already warranted. The BoE acknowledged the ongoing progress in domestic disinflation and anticipates a significant slowdown in pay growth throughout the remainder of 2025. However, the BoE emphasized that monetary policy is not on a "pre-set path," indicating a data-dependent, meeting-by-meeting approach. The MPC considered various potential scenarios for domestic inflation and circumstances that could necessitate a change in monetary policy direction. During its May meeting, the BoE noted weak underlying GDP growth and revised its inflation forecasts downward. Furthermore, the MPC anticipates a more significant deterioration in the labor market, with the unemployment rate projected to rise to 5.0% in the coming years. While the BoE plans to adhere to its "gradual and careful" strategy, we forecast two additional rate cuts this year (August and November) and five more in 2025, bringing the Bank Rate down to 2.5% by November 2026.