Bank of England (BoE) Meeting Preview: Job Market Holds the Key as 25 bps Cut Looms

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The Bank of England's (BoE) Monetary Policy Committee (MPC) meeting on Thursday, August 7, 2025, is an important moment for the UK economy. Everyone is watching closely for the BoE's decision on interest rates and updated economic forecasts.

The current Bank Rate is 4.25%, after cuts in February and May 2025. Most analysts and market predictions expect a 0.25% cut, bringing the rate down to 4.00%. This move would show the BoE continuing to take a more supportive approach to help the UK economy adjust to current challenges including the labor market.

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When it comes to the vote split, i do expect seven members to vote for a 0.25% rate cut, with one member possibly disagreeing (either wanting no change or a 0.5% cut). However, this vote split isn’t a strong indicator of future decisions, even though markets often react to it on the day.

What are the Key Concerns for the Bank of England (BoE) Moving Forward?

Labor Market

The labour market has shown signs of cooling. The number of employees on payroll has dropped in seven of the last eight months. The unemployment rate has gone up slightly this year, and the data now seems more reliable than in past years. Job vacancy data from Indeed shows that the UK job market has slowed down more than other major economies.

Source: ING

Slowing Economic Growth

Economic growth has been weaker than expected since the June MPC meeting. The economy shrank by 0.3% in April and 0.1% in May, falling short of the BoE's Q2 growth forecast of 0.25%. The UK economy is struggling with slow growth, a weak housing market, and declining business confidence.

These poor growth numbers are the main reason for the BoE's expected rate cuts, as they pose a bigger risk to stability than high inflation. This shows the Bank is shifting its focus to supporting the economy, even with inflation above target.

Sticky Inflation Keeps the BoE Careful

Inflation remains a key concern despite recent declines. In June 2025, headline inflation (CPI) rose to 3.6%, up from 3.4% in May, staying well above the BoE's 2% target. Core CPI also increased to 3.7%, and services inflation stayed high at 4.7%, reflecting strong domestic price pressures.

Food prices, higher wages, and rising labor costs are driving inflation. The BoE is particularly cautious when CPI is between 3.5% and 4%, as it risks becoming long-term. Inflation is expected to average 3.4% in 2025, drop to 2.6% in 2026, and hit the 2% target in late 2026.

Services inflation is slow to improve due to factors like annual price setting in April, meaning noticeable changes may not appear until next spring. This delay forces the BoE to take a careful approach to rate cuts, avoiding moves that could reignite inflation before these pressures ease.

Source: Created by Zain Vawda, Google Gemini

Outlook Moving Forward: The Path of Monetary Policy

If we do get a rate cut tomorrow, analysts predict the Bank of England (BoE) will continue with gradual 0.25% cuts every quarter. Markets expect one final cut in November 2025, bringing the rate to 3.75%. Some forecasts, like Danske Bank, predict further cuts into 2026, lowering rates to 2.75%, while others, like the OECD, expect rates to settle at 3.5% by 2026. The BoE has hinted at more cuts if conditions remain stable but hasn’t specified details.

The BoE’s easing contrasts with the US Federal Reserve’s cautious approach, as the Fed held rates steady at 4.25%-4.50% in July due to inflation risks. However, last week's jobs data has significantly changed the outlook for the Federal Reserve moving forward.

The BoE’s rate cuts face risks, including inflation staying above target longer than expected, the impact of past rate hikes as households refinance mortgages, and tighter government budgets.

Global challenges, like US tariffs and geopolitical instability, add further pressure. These factors mean the BoE will likely take a slow and cautious approach to rate cuts, extending into 2026, as the economic outlook remains uncertain.

Technical Analysis - GBP/USD

From a technical standpoint, GBP/USD has arrested its recent slide which coincided with US Dollar weakness.

The selloff which reached a low of 1.3141 last week before recovery still may have further legs.

A rate cut by the BoE has probably been priced in which means the actual rate decision may do little to move GBP/USD tomorrow.

However, if Governor Bailey issues any hawkish remarks, this could help edge GBP/USD lower toward last week lows.

Only a daily candle close above the swing high at 1.3585 will invalidate the bearish setup and may be a sign that momentum is shifting.

Heading into tomorrow, immediate resistance rests at 1.3378 before the 1.3500 handle comes into focus. On the downside, last week's lows at 1.3141 may provide support with a break below opening up a retest of the key pivot level at 1.3000.

GBP/USD Daily Chart, August 6, 2025

Source: TradingView.com (click to enlarge)

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