Bank of England Likely to Cut Five Times in 2025 says Deutsche Bank

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The Bank of England (BoE) is poised to implement multiple interest rate cuts throughout 2025, according to Sanjay Raja, Senior Economist at Deutsche Bank.

In its latest research note, Deutsche Bank now anticipates five rate cuts this year, up from its previous forecast of four.

The BoE’s Monetary Policy Committee (MPC) on Thursday reduced Bank Rate by 25 basis points to 4.5% as part of its easing cycle and slashed its economic growth forecasts while hiking inflation projections.

Despite the prospect of inflation rising to 3.7% this year, Raja says, "the door for further rate cuts remains wide open," given the prevailing economic conditions and mixed inflation projections. The MPC’s recent vote revealed divisions within the committee, with seven members supporting a quarter-point cut and two members advocating for a more aggressive 50 basis points reduction.

Surprisingly, arch-hawk Catherine Mann joined arch-dove Swati Dhingra in voting to accelerate the pace with a 50 basis point cut.

"For the two dissenters, weaker activity and lower labor demand were likely to reduce wage pressures as well as moderate firms’ pricing power," Raja noted.

GDP and Inflation Outlook

The BoE has revised its growth outlook downward, now expecting UK GDP to expand by only 0.75% in 2025, a significant reduction from its previous forecast of 1.5%.

"The weakness in near-term GDP reflects the weakness in growth data to end 2024,” the Deutsche Bank report highlights.

However, the medium-term growth projection remains at 1.5% for both 2026 and 2027.

Inflation expectations have also been adjusted, with the BoE raising its near-term forecast.

CPI inflation is now projected to rise to 3% year-on-year in Q1 2026, compared to a previous estimate of 2.6%. However, inflation is expected to gradually decrease to 1.9% by the end of the forecast period, suggesting a stabilisation in price levels over the medium term.

Labour Market and Rate Path

The jobless rate projection has been revised upwards, with unemployment expected to peak at 4.8% compared to the previous estimate of 4.4%. “The MPC continues to see the labor market as ‘broadly in balance,’” Raja commented, despite some near-term weakness in employment.

Given these economic conditions, Deutsche Bank expects the BoE to execute another rate cut in May, a shift from its earlier expectation of no rate cuts in Q2 2025.

This will be followed by three additional cuts in the second half of the year, likely occurring in August, November, and December, bringing the total reductions in 2025 to five.

“The heightened risk of trade war and confirmation in Q4-25 that pay deals will drop further to near 3% in 2026 should give the MPC more conviction to lower Bank Rate towards the middle of their published range,” Deutsche Bank’s report stated.

The Conversation Has Shifted

Despite the BoE’s dovish pivot, uncertainties persist regarding the speed and magnitude of monetary easing.

Raja emphasised that while the MPC acknowledges an uptick in near-term inflation, Governor Andrew Bailey downplayed the risks of second-round inflationary effects.

"The conversation within the BoE has shifted from the need to cut Bank Rate or not towards cutting slowly versus more rapidly – at least for now," he explained.

While the outlook leans toward a backloaded easing policy, Deutsche Bank warns of hawkish risks, particularly if inflation remains stickier than expected.

"For some time now, we have subscribed to a more backloaded easing in policy, due in large part to our expectations around stronger wage settlements and stronger inflation over the first half of 2025," Raja cautioned.

As the BoE navigates these economic crosscurrents, Deutsche Bank’s forecast of five rate cuts suggests that the central bank is determined to provide additional monetary support to the economy, albeit at a measured pace.