BoE Cuts Rates After Rare Revote

The Bank of England delivered a widely anticipated 25 basis point rate cut on 7 Aug 2025, bringing Bank Rate down to 4.0%. But behind the headline, the process was anything but routine.

Stagflation Risks Mount as Markets Watch QT and Fed Politics

In an unprecedented twist, the nine-member Monetary Policy Committee (MPC) had to re-run the vote after the first round ended in a 4–4–1 deadlock: four members voted to hold, four supported a 25bp cut, and one external member Swati Dhingra, opted for a larger 50bp cut. The deciding swing came when Alan Taylor shifted his position in the second vote, breaking the tie and delivering a narrow 5–4 majority for easing. This rare two-stage vote reveals the deep policy rift at the heart of the BoE.

That division reflects the UK’s increasingly precarious economic backdrop. Growth is clearly softening: payroll numbers are falling, unemployment is ticking up, and the post-NI hike consumer strain is beginning to show. Yet inflation remains uncomfortably high, driven by food prices, import costs, and geopolitical supply shocks. There’s a risk that “zombie” inflation remains sticky and even the MPC warned it could tick back up to 4% by September.

Markets responded with nuance. Two-year gilt yields rose by about 5 basis points, reaching 3.88%, as traders reassessed the likelihood of further rate cuts in the near term. At the same time, Sterling strengthened. The move was partly driven by the perception that the MPC’s internal tensions signal caution about aggressive easing, but also helped by political news from across the Atlantic.

In the U.S., Donald Trump’s appointment of Stephen Miran, a known rate-cut advocate, to the Federal Reserve Board was seen as a shift toward a more dovish Fed posture, weakening the dollar and adding upward pressure on GBP/USD.
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Looking ahead, focus will shift to September’s announcement on Quantitative Tightening, where the BoE is expected to slow the pace of balance sheet reduction to around £50 billion per year. A softer QT stance would help ease pressure on long-duration gilt yields and could be seen as an indirect form of easing.

Bottom line: The latest rate cut offers some support, but the UK is now clearly walking a tightrope. Stagflation risks are real, and the BoE’s path forward remains anything but certain.