Why the Bank of England Cut Rates Despite Rising Inflation, and Why It’s a Risky Bet

Josh Groves

31st October 2025

Written by Josh Groves

On Thursday, Andrew Bailey, Governor of the Bank of England, announced a cut to the base interest rate from 4.25% to 4%. In a closely split vote, the majority backed the quarter-point reduction, continuing a recent trend of gradually lowering borrowing costs in an attempt to revive the UK’s stagnant growth.

Yet the timing is contentious. Inflation remains stubborn, inching up from 3.4% in May to 3.6% in June, which is above both US and EU levels. Bailey justified the move by citing the need to balance the risks of “inflation persistence” against “inflation weakness”, which may be a problem in the future. He argued that some current price pressures stem from temporary shocks, noting that while inflation is expected to climb to 4% in September, these increases should prove short-lived.

So why the criticism? After all, avoiding the spectre of stagflation is essential to the UK’s economic outlook, and a gradual easing of the base rate could encourage consumer spending and lift the stock market, a priority which Chancellor Rachel Reeves has made clear.

The concern lies in the Bank’s view that some drivers of inflationary pressures are temporary. While astute evidence surely supports this view, if those pressures persist, the Bank could find itself in a difficult bind. New, unforeseen disruptions could also emerge, undermining both monetary stability and the government’s position.

In this light, waiting until September to adjust rates may have been the safer path.

Ultimately, the Bank of England faces a delicate balancing act: loosening monetary policy without reigniting inflation. The process of normalising interest rates will need to be responsive to shifting economic conditions.