The Bank of England (BOE) is expected to keep the bank rate steady at 4.00% today. Although the labor market has weakened a little, there’s no sign of a sharp downturn, which lessens the need for quick rate cuts. July’s inflation numbers and medium-term price risks suggest that consecutive rate cuts aren’t necessary.

Approach to Inflationary Pressures

The BOE should take a careful and gradual approach while addressing ongoing inflation issues. The voting outcome on the bank rate is likely to be 7-2, with Dhingra and Taylor supporting a rate cut. Ramsden might join them, which could lead to a 6-3 vote. This voting scenario is intriguing, especially after last month’s split vote that required a second round. Some hawkish views were present in August, which could affect the BOE’s September approach, especially with slightly rising inflation. The central bank is expected to announce its decision cautiously. We expect the Bank of England to keep rates at 4.00% today, which aligns with market expectations. The latest inflation data for August 2025 showed a rise to 3.1%, giving the central bank reason to be careful and avoid premature rate cuts. This slight increase from July highlights that returning to the 2% target won’t be straightforward. The split in the vote will send significant signals for future policy. A 7-2 vote to hold rates is our baseline, but a 6-3 vote would indicate a dovish shift, likely leading markets to expect a higher chance of a rate cut before year-end. This would make betting on lower rates in November, such as options on SONIA futures, more appealing.

Inflationary Concerns Amid Economic Slowdown

Inflation is a concern right now, even as the economy slows. Recent data shows the unemployment rate rising to 4.5%, and GDP growth is stagnant at just 0.1%. This creates uncertainty, as traders evaluate the risk of ongoing inflation against the possibility of a recession. The current situation offers opportunities for traders dealing with volatility in sterling-denominated assets. Reflecting on the aggressive rate hikes of 2022 and 2023, which aimed to combat high inflation, the Bank is cautious about easing policy too soon, even with a weak economy. This means that the threshold for a rate cut remains high, and any hawkish wording in today’s statement may delay market expectations for a cut until early 2026. In the coming weeks, we should focus not on the decision to hold rates but on the details surrounding it. A more divided vote could steepen the yield curve as the market anticipates future cuts. We should be ready to act on any changes in tone, as this could shape UK rates for the rest of the year. Create your live VT Markets account and start trading now.

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