The Bank of England (BoE) has already started easing, but don’t expect a rapid series of cuts. According to a new Reuters poll, most economists believe the BoE will only lower rates one more time this year before pausing until early 2026.
The reason is a resilient UK economy that’s still fueling stubborn inflation.
Earlier this month, the central bank trimmed its Bank Rate by 25 basis points to 4.00%, in a rare 5–4 split vote. Governor Andrew Bailey was quick to warn that cuts should not come “too quickly or by too much.”
June’s inflation unexpectedly spiked to 3.6%, forcing the BoE to raise its forecast peak to 4.0% for this quarter. July data, due this week, may show another uptick to 3.7%.
That’s nearly double the BoE’s 2% target, and explains why policymakers are reluctant to ease aggressively.
Wages are part of the problem. Official data shows average pay (excluding bonuses) grew 5% in the three months to June. For inflation to fall sustainably, that figure needs to drop closer to 3%.
As HSBC economist Chris Hare put it:
“The risk is we do ultimately get 4% inflation, coupled with wage growth not easing as expected. That could push the MPC majority to pause.”
What complicates things further is that Britain’s economy just won’t slow down. GDP grew 0.3% last quarter, putting the UK ahead of its G7 peers for the first half of 2025. Forecasts now point to steady growth of 1.1% in 2025 and 1.2% in 2026, roughly the same pace as last year.
As Elliott Jordan-Doak of Pantheon Macroeconomics explained:
“What we’re learning is that the economy has an underlying resilience people didn’t anticipate. That resilience ultimately feeds into our rate call.”
The message from Threadneedle Street is clear: don’t expect cheap money anytime soon.
Yes, another quarter-point cut is likely in November, but after that, the BoE will probably sit tight until inflation shows a decisive downtrend. With wage growth sticky and the economy holding up, the central bank simply doesn’t have the room to be aggressive.
In short, the BoE is stuck on a knife’s edge, balancing growth, inflation, and credibility. Investors hoping for a wave of cuts may need to temper expectations.
