Bank of England’s latest decision on base rate

The Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 5-4 to reduce the base rate to 4% at its August meeting⁽¹⁾.

Four members of the committee had voted instead to maintain it at 4.25%.

In setting out the context to the vote, the MPC said: ‘There has been substantial disinflation over the past two and a half years, following previous external shocks, supported by the restrictive stance of monetary policy. That progress has allowed for reductions in Bank Rate over the past year.

‘The Committee remains focused on squeezing out any existing or emerging persistent inflationary pressures, to return inflation sustainably to its 2% target in the medium term.’

Reacting to the decision, Dr David Crosthwaite, chief economist at BCIS, said: ‘As widely anticipated, the Bank of England cut the base rate by 25 basis points, but will it be enough to stimulate the construction sector, or is it too little too late?

‘The investment climate continues to soften and with talk of a fiscal black hole to be filled in the Autumn Budget, there seems to be little appetite for construction currently.

‘Despite the government’s recent announcements, the anticipated uptick in demand just doesn’t seem to be materialising and, given issues in the wider economy, we might have to wait a bit longer to see demand recover.

‘Investors seem to be holding off, with a wait and see attitude until after the Budget. We can only hope that the reduction to the cost of borrowing announced today will spur some investment in fixed assets sooner rather than later.’

The committee reported on various factors in the construction sector that influenced the vote.

They said while annual growth in private new housing construction output turned positive in late 2024, having been negative since early 2023, growth in housing investment is likely to remain subdued, relative to historical norms, over the coming year.

Insight gathered by Bank of England agents – representatives who liaise closely with local businesses to monitor economic conditions across sectors – pointed to subdued sentiment in construction as well as other sectors, with weak demand expected to continue throughout the rest of 2025.

The committee reported: ‘A few construction suppliers to house builders are seeing modest order growth, but other output is flat or falling as projects, for example in the renewables sector, continue to be delayed. 

‘The annual pace of decline in construction output is slightly worse, mainly due to a further softening in commercial activity. While the medium-term outlook is positive, some remain cautious about the extent of recovery in 2026.

‘Commercial construction projects continue to be delayed or shelved, alongside a more general slowing in commercial activity. Contacts reported delays to public sector projects ahead of the Spending Review. While the review has increased clarity around government and infrastructure projects, some remain concerned that these delays will persist.

‘House builders now mostly report growth in new build rates, despite frequent mention of planning delays. High-rise development is hampered by new planning regulations and higher costs. Housing association spending remains focused on repair and maintenance. Outside of the High Speed 2 rail network and the Hinkley Point power station, infrastructure spending remains subdued for the most part.’

The MPC’s next vote will be published on Thursday 18 September 2025.

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^{(1) Bank of England – Bank Rate reduced to 4% – August 2025 – here}