LONDON, June 19 – The Bank of England (BoE) opted to keep interest rates unchanged at 4.25% during its June policy meeting, signaling a cautious approach amid growing signs of weakness in the labor market and rising global uncertainty, particularly surrounding escalating conflict in the Middle East.
The Monetary Policy Committee voted 6-3 to maintain the current Bank Rate. Deputy Governor Dave Ramsden, along with Swati Dhingra and Alan Taylor, voted in favor of a 0.25% interest rate cut, reflecting growing concern among some policymakers about the ongoing economic slowdown and its possible long-term impact.
Governor Andrew Bailey emphasized that although the general trajectory of interest rates is downward, no predetermined path is being followed. “The world remains highly unpredictable,” Bailey noted. “In the UK, we’re observing emerging signs of labor market softening. Our focus will be on assessing whether these indicators translate into reduced inflationary pressures in the coming months.”
Cautious Outlook Amid Economic Pressures
Despite last month’s decision to lower rates — the fourth such move since August 2024 — policymakers decided against further action this month, citing persistent global uncertainties and higher-than-anticipated inflation levels.
Energy prices have been climbing due to intensified conflict in the Middle East, which has fueled concerns over potential inflationary spillovers. While this geopolitical development did not significantly influence the BoE’s June decision, the central bank made it clear that such trends will be closely monitored. “Energy price increases, driven by geopolitical instability, remain a concern. The Committee remains vigilant about their implications for the UK economy,” the BoE stated.
Investor sentiment had already anticipated the decision to hold rates steady. Before the announcement, financial markets were pricing in the likelihood of at least two additional 0.25% rate cuts by the end of the year, bringing the Bank Rate down to approximately 3.75% by December 2025.
Labor Market and Inflation in Focus
One of the BoE’s key concerns is the softening in the domestic labor market. Recent data has pointed to a modest uptick in unemployment and a slowdown in wage growth, both of which could help cool inflation. However, the central bank emphasized that it would adopt a “gradual and careful” stance in any future moves, ensuring that rate reductions do not reignite inflationary pressures.
Inflation forecasts for the second half of 2025 remain largely unchanged. The BoE expects inflation to peak at 3.7% in September and to average just below 3.5% for the remainder of the year. While still above the Bank’s 2% target, these figures suggest that inflation is continuing to edge downward at a manageable pace.
The UK economy is projected to grow at a modest rate of 0.25% in the second quarter of this year, a slight upgrade from previous estimates. However, underlying growth momentum remains subdued, with consumer demand and business investment showing limited signs of acceleration.
International Dynamics at Play
The BoE also considered the broader global economic landscape in its decision-making. While concerns persist around the implications of protectionist trade policies — notably U.S. tariffs under President Donald Trump — BoE staff indicated that the overall impact may be less severe than earlier anticipated. Nonetheless, trade uncertainty continues to pose risks to the UK’s growth prospects.
Globally, central banks are treading carefully. The U.S. Federal Reserve held interest rates steady in the 4.25%-4.50% range earlier this week, mirroring the BoE’s cautious tone. The Fed also revised its 2025 growth projections downward while raising its inflation outlook, reflecting the mixed signals coming from the world’s largest economy.
Meanwhile, the European Central Bank has already moved more aggressively, cutting rates by a full two percentage points over the past year to combat less persistent inflation. In contrast, the BoE and the Fed have each lowered their benchmark rates by one percentage point, reflecting a more measured approach in response to more entrenched inflationary pressures.
Adding to the global picture, the Swiss National Bank also cut its key interest rate by 25 basis points to 0% earlier on Thursday. Swiss policymakers cited fading inflationary pressures and the potential impact of international trade disputes on the broader global economy as key reasons for their decision.
Looking Ahead
With inflation gradually easing and growth prospects remaining weak, the BoE faces a delicate balancing act. While rate cuts are likely on the horizon, any adjustments will be made cautiously and in response to clear economic signals.
For now, the message from the Bank of England is one of steady hands and watchful eyes. As Governor Bailey put it, “This is not a time for complacency. Our approach will remain data-driven, guided by developments in inflation, employment, and the wider global context.”
As the UK navigates through a mix of domestic and international challenges, the BoE’s measured stance underscores its commitment to ensuring both economic stability and price control without rushing into aggressive monetary easing.