BOE Stays Ahead of the Fed With Rate Cut. Why the Vote Was ‘Historic.’

The Bank of England is pictured in central London. (Daniel Leal/ AFP via Getty Images)

The Bank of England cut interest rates again on Thursday, as it stayed ahead of the Federal Reserve when it comes to easing monetary policy.

The BOE slashed rates by a quarter of a point to 4%. It’s the first time since May and the fifth time this year that the central bank has lowered borrowing costs.

Two rounds of voting were required for the first time since the Monetary Policy Committee was launched 28 years ago.

In the first round, four members voted to hold rates steady and four backed cutting them to 4%. MPC member Alan Taylor initially favored lowering rates to 3.75%, then shifted to backing a quarter-point reduction in the second round of voting to break the deadlock.

“While we expected a three-way split in the vote tally, today’s decision was more finely balanced than we expected,” Deutsche Bank’s chief U.K. economist Sanjay Raja said. “A 4-4-1 vote tally brought about a second vote count to deliver a majority rate cut of 5-4. This was historic.”

“It was a finely balanced decision,” BOE Gov. Andrew Bailey said. “Interest rates are still on a downward path.”

The Fed is yet to slash rates this year, but traders see a 93% chance that it will do so in September, according to CME’s FedWatch tool.

Weaker services activity and a dismal July jobs report have stoked worries that the Fed may soon have to cut interest rates to stave off stagflation. The U.K. could end up being a test case, as it too is struggling to address a toxic combination of sticky inflation and sluggish growth.

The U.K. economy unexpectedly contracted in May—the second month in a row that it has shrunk. The unemployment rate crept up to 4.7%, from 4.6% previously.

That worrying economic data would usually make it an easy decision for the BOE to cut—but the central bank also had to factor in inflation running above its 2% target. The rate of price rises climbed to 3.6% in June, the highest it’s been since January 2024.

None of that has done much to dent U.K. stocks, though. London’s flagship FTSE 100 index is up 12% this year to record highs, boosted by the government’s plans to raise defense spending, as well as a deal Prime Minister Keir Starmer brokered with President Donald Trump to set U.S. baseline tariffs at just 10%. The S&P 500 is up 7.9% in 2025.

Write to George Glover at george.glover@dowjones.com