BoE leaves rates unchanged, ECB cuts as expected

Bank of England

The MPC chose to maintain Bank Rate at 4.25%, leaving borrowing costs unchanged for now. The 6–3 vote, with three dissenters favouring a cut, highlights an ongoing internal split between those pushing for further easing and those calling for continued caution.

Governor Andrew Bailey characterized the tone as measured and watchful, noting that rates remain on a gradual downward path but are not on a pre-set trajectory, while continuing to refrain from any firm commitment to further cuts. He referenced signs of labour market softening, and stated the MPC will carefully monitor how these trends feed into inflation. While the voting pattern was mildly more dovish, "There was a range of views among members on the remaining degree of restrictiveness (of policy)," suggesting that, for some members, the bank might be close to a neutral rate already.

The MPC statement said, "More pronounced disinflation was needed to ensure CPI inflation declined back towards the 2% target consistent with the baseline projection in the May Report."

There was no change in their guidance that, "Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further."

Key dynamics shaping the 19 June decision include persistent inflation—at 3.4% in April and May—rising energy costs, driven by Middle East instability, contributing to inflationary pressure.

European Central Bank

The ECB’s back-to-back rate cuts lower the cost of borrowing to less than half the level in the UK and the unchanged level set in the U.S. by the Federal Reserve overnight between 4.25% and 4.5%.

However, the tone was somewhat hawkish, with President Christine Lagarde describing policy as being “in a good place.” Subsequent comments from various ECB governing council members also suggested that the Central Bank should take a cautious approach to any further easing, since there are upside risks to inflation over the medium term.

One member opposed the cut, underlining ongoing caution over sticky wages and services inflation. Lagarde described the position as “in a good place,” signalling a possible short-term pause in cuts, and reiterated that future adjustments will remain data‑dependent.

Economic growth has remained weak across the Eurozone and especially in France and Germany, despite a boost in Q1 from front-loading ahead of the expected U.S. tariffs. The outlook for next year is also weak, according to forecasts by the EU.

The ECB statement said, “While the uncertainty surrounding trade policies is expected to weigh on business investment and exports, especially in the short term, rising government investment in defence and infrastructure will increasingly support growth over the medium term.”

The Bank lowered its 2025 and 2026 headline inflation forecasts by 0.3pp, to 2% and 1.6% respectively, with the 2027 number at 2%. Typically, such a large downward revision to the ECB’s forecasts would have allowed the Bank to guide towards further and imminent easing, but not on this occasion.

Moving forward

Looking ahead, markets are pricing in roughly 50bps of rate cuts by year-end, with odds of ~80% for a cut at August’s MPC meeting. However, the BoE seems likely to maintain its “gradual and careful” stance, given how “sticky” inflation has proven to be, weighing inflation data—especially from energy, wages, and trade—against economic momentum.

For the ECB, markets are currently pricing in a pause in July, with just one further 25 bps cut possible in December, leaving the deposit rate near 1.75% by year-end. Nonetheless, the ECB maintains a meeting‑by‑meeting stance, with further cuts contingent on incoming inflation, wage, and growth data, not forgetting what happens with U.S. tariffs.