The chances of another cut to UK interest rates this year, to 3,75%, have fallen today, following the Bank of England’s warning that inflation will rise higher than expected this year,The closeness of this week’s vote to cut rates, with four out of nine policymakers wanting to hold rates at 4,25%, also appears to make further cuts in 2025 less likely,The money markets are now indicating that the next cut is not full priced in until February 2026.

This morning, before the Bank’s decision to cut rates to 4% at noon, the City was expecting one cut today and a second by December.Capital Economics have told clients that the Bank appears “in no rush to cut again soon”.Ruth Gregory, their deputy chief UK economist, says:Although the Bank of England cut interest rates today by 25 basis points (bps), from 4.25% to 4.00%, it showed some signs that it may cut rates slower and/or not as far as our forecast of a decline to 3.

00% in 2026.We are sticking to our view that interest rates will fall further than most expect.But we’ve become a bit less confident in our forecast that the next 25bps rate cut will happen in November.The money markets are now predicting two more rate cuts by the end of 2026, which would bring rate down to 3.5%.

Investors will have noted governor Andrew Bailey’s warning against cutting rates ‘too quickly’.Economics professor Jonathan Haskel, a former MPC policymaker, suggests the Bank’s concerns about inflation signal fewer future cuts than the market expectingFascinating split on the MPC @bankofengland today.No second votes during my time! Reminder: splits are a feature not a bug, individuals should have different views.On the economics, as one still worried about inflationary pressures..

....equally fascinating MPR: p.

11 on service price and wage inflation...”UK services inflation has…not yet fully normalised to a target-consistent path..

.pay growth...higher than can be explained by its usual economic determinants.

”...https://t.co/i64gp1JfEKTo me, signals fewer future cuts than the market expecting.

Derek Halpenny, head of research for global markets at MUFG, says the Bank appears more concerned about the risks to inflation:“Based on the voting composition in this MPC meeting (5-4 versus 5-2-2 in May) and other elements of today’s announcement this is obviously a more hawkish policy announcement and we have seen some of the expectations for a Nov rate cut taken out of the market.Yesterday, the implied Nov pricing assuming a cut today was about 18bps....

that’s dropped to about 12bps now,It’s clear that the pick-up in the estimate of inflation peaking at 4,0% has made some uncomfortable with the idea of continued steady easing,Time to wrap up…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’’Here’s a breakdown about what today’s interest rate could could mean for you:Professor Costas Milas, of the Management School at University of Liverpool, explains that higher public sector pay rises could unnsettle the Bank’s forecasts:I still see another cut in interest rates by 25 basis points later this year.However, I am a bit worried about the conditioning assumptions in the Monetary Policy Report.The BoE continues to pay attention to private sector wages, when, in fact, as I have shown in an LSE Business Review blog public sector wage growth drives private sector wage growth even higher.It is therefore important for the government not to agree to the wage demands of resident doctors (and nurses) as these wage demands will create additional inflationary pressures by lifting private wages much higher than what the BoE currently predicts!Economists at Investec say their confidence that the Bank of England will cut interest rates again in November has “diminished”.They told clients:For this to play out, the burden of proof has shifted: for the MPC to stick to the once-per-quarter pace of 25bp rate cuts, there will need to be evidence that disinflation in the service sector is continuing, not just that the jobs market is loosening.

Markets have reacted accordingly, with short-term rate expectations and sterling pushing higher.As of yesterday, it was priced as a near-certainty that the Bank rate would end 2025 at 3.75%.Now, the market is less sure, and 2y yields are 5bps higher at the time of writing.GBP [the pound], meanwhile, has strengthened by 0.

5% against the US dollar and 0.6% against the euro at present.This seems an eminently justifiable reaction to us.The chances of another cut to UK interest rates this year, to 3.75%, have fallen today, following the Bank of England’s warning that inflation will rise higher than expected this year.

The closeness of this week’s vote to cut rates, with four out of nine policymakers wanting to hold rates at 4.25%, also appears to make further cuts in 2025 less likely.The money markets are now indicating that the next cut is not full priced in until February 2026.This morning, before the Bank’s decision to cut rates to 4% at noon, the City was expecting one cut today and a second by December.Capital Economics have told clients that the Bank appears “in no rush to cut again soon”.

Ruth Gregory, their deputy chief UK economist, says:Although the Bank of England cut interest rates today by 25 basis points (bps), from 4.25% to 4.00%, it showed some signs that it may cut rates slower and/or not as far as our forecast of a decline to 3.00% in 2026.We are sticking to our view that interest rates will fall further than most expect.

But we’ve become a bit less confident in our forecast that the next 25bps rate cut will happen in November.The money markets are now predicting two more rate cuts by the end of 2026, which would bring rate down to 3.5%.Investors will have noted governor Andrew Bailey’s warning against cutting rates ‘too quickly’.Economics professor Jonathan Haskel, a former MPC policymaker, suggests the Bank’s concerns about inflation signal fewer future cuts than the market expectingFascinating split on the MPC @bankofengland today.

No second votes during my time! Reminder: splits are a feature not a bug, individuals should have different views,On the economics, as one still worried about inflationary pressures,,,.

..equally fascinating MPR: p.11 on service price and wage inflation..

,”UK services inflation has…not yet fully normalised to a target-consistent path,,,pay growth.

..higher than can be explained by its usual economic determinants.”.