Bailey advises against overinterpreting the vote

In its February 2025 meeting, the Monetary Policy Committee (MPC) voted 7–2 to reduce the Bank Rate by 25bps to 4.5%, with two members – Dhingra and Mann advocating for a larger 50 basis point reduction. While a 25bps rate cut was broadly expected, the shift in the dissenting vote from previous hawk Catherine Mann was a surprise. Despite the dovish stance of the vote, the accompanying press conference was more balanced where Governor Bailey continued to indicate that “a gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate” and that “policy will need to continue to remain restrictive for sufficiently long”. 

Inflation higher, growth lower

The MPC increased inflation projections, forecasting that CPI inflation will rise to 3.7% in Q3 2025, largely due to global energy costs and regulated price changes. The MPC's February forecast suggests that the emerging margin of slack in the economy will counteract some second-round effects in domestic prices and wages, forecasting CPI inflation to sustainably return to target.

On the growth side, reflecting recent weakness, the MPC lowered its 2025 forecast by 75bps to 0.75%. In contrast, the 2026 and 2027 forecasts were lifted slightly 25bps to 1.5%.

Conclusion

The MPC's decision to lower the Bank Rate to 4.5% signifies meaningful progress in disinflation while maintaining a cautious approach to easing monetary policy restraint. As the bank continues to rely on data-driven decisions, the recent volatility in the GBP rates curve underscores the importance of a segmented approach to cash investment.

For GBP cash investors, the rate cut will lead to reduced deposit rates. However, our J.P. Morgan Global Liquidity GBP strategies are well-positioned following the rate cut, thanks to our strategic choice to extend our weighted average maturity (WAM) and maintain duration at elevated levels.

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