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Daily Economic Update
10.08.2025UK: BoE cuts rates by 25 bps in a hawkish narrow vote split. UK: BoE cuts rates by 25 bps in a hawkish narrow vote split. The Bank of England (BoE) reduced the bank rate by 25 bps to 4%, with five out of nine MPC members opting for a 25-bps cut and the remaining four for no change. In an unprecedented move, it required two rounds of voting to break the initial inconclusive split when four members voted for no change, four for a 25-bps rate cut and one for a larger 50-bps cut. The bank upgraded its growth forecast for 2025 to 1.2% from 1% earlier but maintained its 2026 forecast at 1.25%. However, it also projects annual headline inflation to peak at 4% y/y by September versus 3.7% seen previously, given stubborn services price rises amid still elevated (though easing) wage growth, and to return to the 2% target by Q2 2027. The committee kept its previous stance of “a gradual and careful approach” to further withdrawals of policy restraint, seeing the restrictiveness of monetary policy having fallen following reductions in the policy rate. After the MPC decision, the BoE governor Bailey delivered a guarded message, saying that “it remains important that we do not cut Bank Rate too quickly or by too much.” Though Bailey mentioned that the path for the policy rate “continues to be downward,” he also stressed that there was “genuine uncertainty” about the next move. Following the BoE’s more hawkish tone and inflation outlook, UK gilt yields increased, with the pound rising against the US dollar. Markets continue to price in another cut of 25 bps before the end of 2025 but with lower probability than previously.
US: Continuing weekly jobless claims continue to rise; Trump nominates Stephan Miran as a temporary Fed governor. Initial weekly jobless claims (w/e Aug 2) rose to a four-week high of 226K from 219K the previous week but remained overall modest, indicating no major increases in layoffs. However, continuing claims (w/e Jul 26) also increased to 1.97mn from 1.94mn the week before, the highest since November 2021, showing difficulty in landing new roles for people who lose their jobs. The labor market continues to see gradual softening, with a moderate pace of new hiring, but unemployment has also been kept in check for now as businesses continue to grapple with a volatile operating environment amid tariff and other government policy uncertainty. Meanwhile, President Trump is nominating White House Council of Economic Advisers Chairman Stephan Miran as Fed Governor to temporarily replace Adriana Kugla, who stepped down last month before the expiry of her term in January 2026. This will give Trump more time to appoint a permanent governor in January, who could later be nominated for the post of Fed Chair at the expiry of Powell’s term in May 2026. Importantly, Trump will be seeking Miran’s confirmation by Congress prior to the next FOMC meeting on 16-17 September. If he succeeds, this will further increase the pressure on Powell to cut interest rates or risk having three dissenters among the sitting Fed governors (Waller, Bowman, and Miran) compared to two dissenters at the last FOMC meeting.
China: CPI unchanged in July but PPI remains in deflation for almost three years now. Consumer price inflation was largely unchanged in July in annual terms (0.0% y/y) but higher month-on-month (0.4% m/m) compared to June (-0.1% m/m). July’s monthly increase is the paciest since January. Annual core CPI also increased to a 17-month high rate of 0.8%, indicating early signs of a strengthening consumer price environment as the government strives to boost domestic consumption. However, producer prices continued their downward trajectory, dropping by 3.6% y/y in July for a 34th consecutive month of decline, as overcapacity concerns and an aggressive price war among producers amid volatile export demand saw sustained decreases in factory prices. The Chinese authorities recently pledged to regulate such price-cutting and signaled to manage some excess capacity to support local price stability.
