UK interest rate cut all but ruled out

“Gradual and careful” approach to interest rate cuts

In recent months, the Bank of England has repeatedly said that it plans to take a “gradual and careful” approach to monetary policy easing. Many have interpreted this as meaning a quarterly pace of rate cuts. This is the pattern we have seen so far:

• August 2024: The first cut this cycle brought rates from 5.25% to 5%.
• November 2024: Rates reduced from 5% to 4.75%.
• February 2025: Rates cut to 4.5%
• May 2025: Rates cut to 4.25%.

The Bank of England has been clear that it doesn’t have any set path in mind, and that it assesses the data on a meeting-by-meeting basis when making decisions.

Inflation still coming in hot

The Office for National Statistics (ONS) published May’s inflation report this morning. Prices rose by 3.4% on an annual basis.

This was down from April’s official reading of 3.5%, but this figure was artificially inflated by a car tax blunder from the Department for Transport, meaning it should have been 3.4%. The ONS decided not to revise April’s report, in line with its usual policy.

A reading of 3.4% is still fairly hot. Remember that the Bank of England’s target is 2%.

Inflation briefly returned to target levels last year, before dropping below 2% in September 2024, but higher energy prices have largely been responsible for pushing it back up in the period since.

The Bank of England expects inflation to peak at around 3.7% in September this year before falling back, according to its latest monetary policy report.

Good afternoon and welcome to our live report. The Bank of England will announce its next interest rate decision at midday tomorrow.

Temperatures might be heating up across the UK, but interest rates are likely to be kept on ice. Markets and economists are confident that the Monetary Policy Committee (MPC) will hold rates at 4.25% tomorrow. Stick with us for all the details, including preview analysis today and live reporting tomorrow.