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The Bank of England has warned that soaring food prices could drive inflation to 4% as it voted for a fifth cut in interest rates in a year, amid mounting concerns over the strength of the UK economy.
In one of its closest decisions since its independence more than 25 years ago, the Bank’s monetary policy committee (MPC) voted by 5-4 to cut its key base rate by a quarter point to 4%.
Taking borrowing costs to the lowest level since March 2023, a cut was widely expected in financial markets. However, the decision was a close call, with the rate-setting panel for the first time in history holding two votes before reaching its verdict.
Andrew Bailey, the Bank’s governor, said:
“We’ve cut interest rates today, but it was a finely balanced decision. Interest rates are still on a downward path, but any future rate cuts will need to be made gradually and carefully.”
The odds of another rate cut this year have fallen following the split vote, and the Bank’s concern about inflation this year.
Here’s what it means for borrowers and savers:
Elsewhere…dozens of countries face higher levies on their exports to the US now that Donald Trump’s latest wave of country-specific tariffs has come into force.
The sweeping “reciprocal” rates announced by the White House a week ago – just before a previous 1 August deadline was due to elapse – were in place as of a minute past midnight Washington time on Thursday.
Just before midnight, Trump claimed on social media that billions of dollars would start flowing into the US as a result of the tariffs.
However, while the customs duties make countries’ exports more expensive and less competitive, they are payable on import and usually passed on to the customer.
“The only thing that can stop America’s greatness would be a radical left court that wants to see our country fail,” the president wrote in capital letters, referencing an ongoing case in the US court of appeals which is considering whether he exceeded his authority in imposing the “reciprocal” tariffs.
Toyota has warned it faces a 1.4tn yen (£7.1bn) hit from Donald Trump’s trade tariffs, as the Japanese company reported a drop in net profit and cut its guidance for next year.
The biggest carmaker in the world said it expected to make an operating profit of 3.2tn yen in its financial year to March 2026, down 16% on previous guidance of 3.8tn yen.
While in the UK property market, house prices rose at the fastest monthly rate this year in July as mortgage rates eased and banks offered bigger home loans, according to the lender Halifax.
Andrew Hunter, associate director and senior economist at Moody’s Analytics, agrees that UK interest rates could fall more gradually than had been expected:
“The Bank of England cut interest rates by 25 basis points on Thursday as expected, but the tone of the announcement was more hawkish than most had anticipated. Four of the nine members of the Monetary Policy Committee voted to keep rates unchanged, while the BoE raised its forecasts for inflation and warned that the upside risks to the medium-term inflation outlook have increased.
Although we expect inflation to remain above 3% over the second half of this year, weaker economic growth and the loosening labour market should convince the BoE to continue cutting rates by 25 bps per quarter, with the next move coming in November. But the August announcement highlights the risk that continued concerns over inflation could see rates being cut even more gradually’’
