Bank of England Holds Steady at 4.25%, Signaling Caution Amid Weakening Jobs Market and Global Volatility

19 June 2025

A general view of the Bank of England building in London, Britain / REUTERS/Carlos Jasso

The Bank of England has chosen to maintain its base interest rate at 4.25 percent, a move that reflects a fragile economic backdrop and its commitment to a cautious, data-driven approach. The Monetary Policy Committee cast a six-to-three vote in favor of holding rates steady, while three members, Deputy Governor Dave Ramsden and external appointees Swati Dhingra and Alan Taylor, favored an immediate quarter-point cut, underscoring growing concern about labor market weakness.

Governor Andrew Bailey emphasized that although the inflation rate currently sits at about 3.4 percent, higher than the Bank’s 2 percent target, it is expected to peak around 3.7 percent in September before gently descending toward an annual average of roughly 3.5 percent for the rest of the year. Despite this projection, policymakers signaled that any future cuts will take place “gradually and carefully,” avoiding hasty action amid continuing global uncertainty.

The labor market remains a central concern. Recent data reveal a sharp decline in pay rolled employment, the largest month-on-month drop since 2020 with an estimated 109,000 fewer workers in May. Service-sector inflation remains sticky, with prices still rising at nearly 4.7 percent annually even as total inflation dips. These trends pose a risk: a cooling labor market may reduce wage growth and ease inflationary pressures, but too swift a monetary easing could expose households and businesses to renewed cost-of-living strains.

Global factors are influencing the Bank’s decision. Rising crude oil prices, driven higher by escalating tensions in the Middle East have the potential to add upward pressure to inflation. Although the conflict did not determine the outcome of the rate decision, the BoE signaled that these developments remain critical to future assessments. Trade friction, notably from emerging U.S. tariff policies, also looms as another downside risk.

Domestically, the UK economy grew by just 0.25 percent in the second quarter, slightly better than previously forecast, but underlying conditions remain weak. Against this backdrop, Chancellor Rachel Reeves and several Coalition voices called for looser monetary policy to support growth, especially as wage growth continues to outpace earlier estimates

International parallels are notable. The U.S. Federal Reserve paused rate adjustments at its June meeting, citing persistent inflation and global tensions mirroring the BoE’s stance. Meanwhile, the European Central Bank is moving ahead with gradual cuts, having done more to lower rates over the past year .

For investors, the message is clear: the BoE anticipates two quarter-point cuts by year-end, potentially in August and later, provided inflation stabilizes and geopolitical conditions don't worsen. Financial markets currently price in about a 60 percent probability of a rate reduction in August.

Internally, the split vote underscores ongoing tension in the committee. Those favoring a cut argue that delaying further risks adding to the economic slowdown, while others caution that premature easing could derail inflation gains. The message from the leadership is caution: they expect progress toward price stability but will proceed only when the data justifies it .

As the Bank prepares its next Monetary Policy Report, public attention will focus on how it balances the tug-of-war between economic support and inflation containment. Will persistent energy prices derail inflation forecasts? Will wage growth decelerate enough to allow more aggressive rate cuts? And how might future disruptions, whether geopolitical or trade-related, reshape the path ahead?

Today’s decision highlights a central bank walking a tightrope. With inflation cooling but far from target and the jobs market showing early signs of faltering, the BoE is betting on patience. It has remained steadfast in its communication that rate reductions depend on sustained economic evidence rather than calendar-based decisions.

This measured strategy may offer reassurance amidst uncertainty, but it also exposes the risk of losing momentum in a weak economy. As autumn approaches, the Bank’s ability to pivot without spooking markets and without undermining economic growth, will be put to the test.