By Brian Swint

The Bank of England will probably follow the Federal Reserve's lead this week by keeping interest rates on hold Thursday. Like its counterpart across the pond, the U.K. central bank is expected to lower rates in the months ahead. Just as Fed Chair Jerome Powell did on Wednesday, the BOE is likely to leave borrowing costs unchanged in its June decision. In May, the BOE lowered its benchmark to 4.25% from 4.5%.

The U.K. has been slowly reducing borrowing costs since the middle of 2024 as inflation pressures started to ease, but now it's facing a dilemma. The main inflation rate is still well above the 2% target--it was at 3.4% in May--and worries about the impact of energy prices and President Donald Trump's tariffs have made some policy makers uneasy about cutting much more.

It's a similar uncertainty to that facing the Fed -- except that unlike in the U.S., which has kept interest rates on hold since the start of the year, the BOE's nine-member Monetary Policy Committee has already lowered its benchmark twice in 2025.

Economists expect it to keep going to support flagging economic growth, just not at every meeting. Gross domestic product was surprisingly strong in the first quarter, but data last week showed that it fell by 0.3% in April.

This month's BOE "decision is unlikely to be unanimous," said Jeremy Batstone-Carr, a strategist at Raymond James. "Although the MPC has telegraphed that it would prefer to cut rates at every other meeting, at least two Committee members may vote for a further easing." That would "signal that the central bank is preparing to loosen monetary conditions again, possibly as soon as August."

The Fed kept its key rate at 4.25% to 4.5% this month and signalled two quarter-point reductions by the end of the year. Powell said that while economic uncertainty had diminished since April, it remains elevated.

Markets aren't fully pricing in the next quarter-point BOE reduction until September, and they also see one more move in December. They then have the odds on the main U.K. rate falling to 3.5% by the middle of 2026.

Write to Brian Swint at brian.swint@barrons.com

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June 18, 2025 16:58 ET (20:58 GMT)

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