Bank of England Slashes Rates to 4% in Controversial Split Decision

The Old Lady of Threadneedle Street just blinked—and the markets are bracing for impact.

Monetary Policy Gets a Haircut

In a 5-4 knife-edge vote, the BoE dropped rates to 4%, its first cut since the 2023 inflation crisis. Traders immediately priced in three more cuts by Q1 2026—because clearly, central bankers have never been wrong about soft landings before.

Pound Takes a Dive

Sterling tumbled 0.8% against BTC within minutes, proving once again that fiat currencies fluctuate more than your average shitcoin. Gold bugs and crypto maximalists are having matching 'I told you so' moments.

The MPC claims this 'preemptive strike' will stimulate growth. Because nothing revives an economy like making government debt cheaper to service—just ask Argentina.

Divided committee and cautious outlook

The MPC’s nine members were initially split, with four favoring a rate hold, four backing a cut, and one advocating a steeper 50-basis-point reduction.

A second round of voting led to the slim majority decision for a 25 basis point cut. The British pound ROSE 0.5% against the dollar following the announcement.

Balancing inflation and weak growth

Policymakers are contending with persistent inflation—the consumer price index rose to 3.6% in June—alongside a sluggish jobs market and weak economic growth.

The Bank stated its focus remains on returning inflation to the 2% target, noting:

“A gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate.”

The U.K.’s GDP contracted 0.1% in May, while employment figures signal slack is building in the labor market.

Labor market signals and economic uncertainty

Despite a fall in payrolled employee numbers and rising unemployment, analysts say there’s no ‘smoking gun’ indicating a sharp downturn. ING economists James Smith and Chris Turner wrote:

“Payrolled employee numbers have fallen in seven out of the past eight months. The unemployment rate has risen by a few tenths of a percentage point this year … [and] vacancy data from Indeed suggests the U.K. jobs market has cooled further than in other major economies.”

However, much of the employment weakness is concentrated in hospitality, affected by recent tax changes. The inflation data remains sticky, complicating the path for further easing.

Outlook for future rate cuts

Looking ahead, some economists anticipate additional rate cuts, but caution that further reductions will depend on clear evidence of disinflation.

Capital Economics’ Ashley Webb forecasts rates could reach 3% in 2026 if wage and inflation pressures ease as expected.