Bank of England Cuts Interest Rates to 4% Amid Warning Inflation Could Rebound to 4%

The Bank of England has delivered its fifth rate cut in a year — but it comes with a warning: inflation could soon rise again. On 7 August 2025, the Bank lowered its base rate to 4%, down from 4.25%, as it continues efforts to support the slowing UK economy. While lower rates will bring relief to many mortgage holders and homebuyers, policymakers say food-driven inflation may soon test household budgets again.

In one of its tightest decisions in years, the Bank’s Monetary Policy Committee (MPC) voted 5-4 to reduce the base rate by 0.25%, marking the lowest rate since March 2023. This follows four previous cuts since the peak rate of 5.25%. Governor Andrew Bailey confirmed the move was a “finely balanced decision” and stressed that while the downward rate path continues, future cuts would be made “gradually and carefully”. The cut is expected to ease borrowing pressure, especially for those on tracker or standard variable rate (SVR) mortgages.

Despite the rate cut, inflation concerns remain front and centre. The Bank now forecasts that inflation could rise to 4% by September, driven primarily by soaring food prices. Global agricultural disruptions and domestic cost pressures — such as higher labour costs and recycling levies — are making supermarket goods more expensive. Recent policy changes, including the £25bn rise in employer NICs and a 6.7% increase in the national living wage, are adding to these pressures. As a result, the Bank expects inflation to fall back under 3% only by mid-2026, and not return to the 2% target until 2027.