Bank of England Cuts Rates - Should You Still be Holding Cash?

This week, the Bank of England held a pivotal Monetary Policy Committee (MPC) meeting that delivered not just a 0.25% interest rate cut but also a dramatic story of internal discord. The Bank Rate now stands at 4%, its lowest since March 2023 - a development with meaningful implications for savers, borrowers, and investors alike.

A Divided Committee Breaks New Ground

For the first time in the MPC’s 28-year history, the committee couldn’t reach a decision in the first round of voting. A second round was needed to break the deadlock - an unmistakable signal of rising internal friction. The final vote was a narrow 5–4, with Governor Andrew Bailey casting the tie-breaking vote. Notably, Deputy Governor Clare Lombardelli dissented, joining Chief Economist Huw Pill in holding the line and in so doing, exposed a growing rift at the heart of UK monetary policy.

This wasn’t just a vote, it was a statement. And the Bank’s language after the decision reflected that shift. Gone was the more confident tone of past cuts. Instead, the Bank signalled that while rates are still expected to trend down, future reductions will be "gradual and careful", given the delicate inflationary balance.

Source: Bloomberg

The Economic Backdrop - Why Caution Probably Won

Inflation is persistently high. With June inflation around 3.6% and forecasts putting it at 4% in September, prices still far outpace the 2% target.

Food prices are soaring. The Bank warned food inflation could reach 5.5% by year-end, adding fuel to inflation expectations and complicating policy decisions.

The labour market is weakening. Unemployment has risen to 4.7%, and job market softening is only adding to the uncertainty.

These conflicting signals - weak jobs, high inflation, fiscal pressures - left policymakers with competing pressures on both sides.

Market Moves & Outlook

Markets responded swiftly. The pound rallied to its strongest point against the dollar in two weeks, while gilt yields rose, reflecting tempered expectations for future easing.

Economists note that markets now assign a low (~7%) probability of another rate cut in September. Most forecasts now point to a final cut in November, bringing Bank Rate to around 3.75% by year-end, if disinflation progresses smoothly.

Meanwhile, Deutsche Bank cautions we’re witnessing one of the slowest and longest easing cycles in decades, a testament to the MPC’s “softly softly” approach this time around.

Why Savers Should Care - And Why Cash Isn’t What It Used to Be

Over the past two years, higher interest rates turned cash into a surprisingly attractive asset. Many savers enjoyed easy-access accounts paying over 5%, but these levels are now well and truly in the past.

• Savings rates are already falling. Easy-access accounts at the major high street banks are now paying well under 2% in many cases.

• Real returns are turning negative. With inflation forecast to hover around 4%, cash savings are losing purchasing power year after year.

• The “cash comfort” trap. Keeping too much in cash can feel safe, but over time it quietly erodes wealth when rates are below inflation.

Here’s how the main high street banks currently compare:

• Barclays Everyday Saver 1.11% AER

• HSBC Flexible Saver 1.30% AER

• Lloyds Standard Saver 1.05%-1.20% AER

• Santander Easy Access Saver 1.20% AER

• NatWest Flexible Saver 1.15%-2.55% AER

Your Next Move - From Reassurance to Strategy

Yes, cash remains vital for emergencies, liquidity, and short-term needs. But now, more than ever, it’s time to consider diversifying:

• Fixed income (bonds) can offer stability and better real yields if inflation eases.

• Equities remain one of the best long-term hedges against inflation.

• Alternatives like real assets or inflation-linked bonds can help cushion portfolios against persistent price pressures.

Final Thoughts - What It Means for You

The BoE’s decision this week wasn’t just another cut, it was a signal that monetary policy is entering a complex, uncertain era. Divisions in the MPC reflect economic complexity, and that uncertainty raises the bar for cash-dominated strategies.

If you’d like, we’d be happy to run a personalised analysis showing how your savings and cash assets may evolve under different inflation and rate scenarios to help you make better-informed decisions.