The Bank of England’s Monetary Policy Committee (MPC) will announce its latest interest‑rate decision on 7 August 2025, and financial markets are watching closely. For businesses engaged in international trade, the outcome has real implications: a change in the Bank Rate influences borrowing costs, business confidence and the strength of sterling. This article provides a detailed look at what the MPC is considering, explains why the decision matters for companies that buy or sell overseas, and outlines how to plan your foreign‑exchange (FX) strategy accordingly.
The policy backdrop: where we are and how we got here
In the year leading up to August 2025, the Bank of England has been gradually reducing the Bank Rate from **5.25 % to 4.25 %**⁶. Cuts in August and November 2024 were followed by further reductions in February and May 2025. At the most recent meeting in June, the nine‑member MPC voted 6–3 to leave the rate unchanged at 4.25 %; three members argued that another reduction was already warranted⁷. This split vote highlights divergent views within the committee and underscores the uncertainty about the pace of future easing.
Looking ahead to the 7 August meeting, money markets suggest there is an 80–94 % chance of a 25‑basis‑point cut⁸⁹. If that happens, Bank Rate would fall to 4.0 %, marking the fifth reduction since August 2024 and returning the benchmark to its lowest level since March 2023⁸. However, the MPC has emphasised that policy decisions will remain data‑dependent and that any adjustments will be made gradually to avoid reigniting inflation.
Several factors are weighing on the committee:
- Economic growth is stalling. Official figures show the UK economy contracted in April and May. Business investment and consumer spending are weak, while the manufacturing and services sectors report slowing orders⁸. Higher borrowing costs have curtailed corporate expansion, and ongoing trade disputes are dampening sentiment.
- The labour market is cooling. After a prolonged period of tight labour supply and rapid wage growth, unemployment has begun to rise. This suggests some slack is emerging, which could help bring inflation down but also raises concerns about household incomes and demand.
- Inflation remains above target. Consumer price inflation edged up to 3.6 % in June, still well above the Bank’s 2 % target⁸. Food and energy costs remain volatile, and survey data show that businesses and consumers expect inflation to stay elevated for some time¹⁰.
- Global headwinds are intensifying. Tariff increases by major trading partners, geopolitical tensions and supply‑chain disruptions continue to affect UK imports and exports. A stronger US dollar and weaker euro also put pressure on the pound’s exchange rate, influencing the cost of imported goods.
Within the MPC, opinions differ on how to balance these factors. Some members argue that a faster pace of cuts is needed to support growth and keep the labour market from deteriorating further. Others worry that premature easing could allow inflation pressures to persist. Governor Andrew Bailey has repeated that the committee will take a “gradual and careful” approach¹⁰, reinforcing expectations of small, measured adjustments rather than abrupt shifts.
Interest rates, currency markets and your bottom line
The Bank Rate influences the cost of credit across the economy. A lower rate reduces the interest businesses pay on variable‑rate loans and can encourage banks to lend more, supporting investment. At the same time, changes in interest differentials between currencies cause movements in exchange rates, which are critical for companies trading globally.
How rate cuts affect sterling
When the Bank of England reduces its policy rate while other central banks stand pat, the pound often weakens. Investors seeking higher yields shift funds into currencies with higher interest rates, putting downward pressure on sterling. That depreciation can have mixed effects:
- Exporters may gain a competitive edge. A weaker pound makes UK goods and services cheaper for overseas buyers, potentially boosting export volumes.
- Importers face higher costs. Businesses that buy raw materials or finished products from abroad will see sterling prices rise. This can squeeze margins unless price increases are passed on to customers.
- Profit margins can shift quickly. For example, a 2 % move in GBP/EUR on a £1 million invoice translates to a £20 000 change in the sterling amount owed. Without a hedging strategy, such swings can erode carefully planned profits.
These dynamics explain why understanding monetary‑policy changes is essential for corporate treasurers, CFOs and finance managers. A change in the Bank Rate may signal a broader shift in economic conditions and prompt speculative movements in currency markets. Even if your firm’s borrowing is fixed, exchange‑rate movements can still affect cost of goods sold, pricing strategies and overall profitability.
Scenario analysis: what happens if rates are cut – or held
Although most analysts expect a cut in August, it is important to consider both outcomes. Below are two simplified scenarios to illustrate potential market responses:
Scenario 1 – A 0.25 percentage‑point cut
If the MPC reduces the Bank Rate to 4.0 %, money‑market rates and short‑term yields would likely fall immediately. Commercial banks could pass on part of that reduction to borrowers, easing financing costs. Currency traders might see the decision as evidence that the easing cycle has further to run, putting downward pressure on GBP/USD and GBP/EUR. Businesses could face:
- Short‑term currency depreciation: The pound might decline 1–2 % against major currencies, increasing the sterling value of foreign invoices.
- Lower cost of debt: Companies with floating‑rate debt could see interest payments fall, freeing up cash flow.
- Potential for another cut later: Markets may begin to price in an additional reduction in November if data remain weak¹⁰.
Scenario 2 – Rates held at 4.25 %
If the MPC decides to pause, the immediate reaction could be a modest appreciation in the pound as traders unwind expectations of further easing. Borrowing costs would stay unchanged in the short term. Companies could experience:
- Stabilising currency: GBP might strengthen slightly as markets recalibrate, easing the sterling cost of imports.
- Persistent caution on investment: Businesses may delay spending if they anticipate tighter financial conditions ahead.
- Higher probability of only one cut in 2025: Some analysts already argue that a single reduction might be enough¹⁰.
Remember that markets often move on the unexpected. If the MPC cuts by more than 0.25 percentage points, or if inflation data surprise to the downside before the meeting, reactions could differ significantly. Preparing for these eventualities is central to effective risk management.
Building a foreign‑exchange strategy around policy uncertainty
For finance decision‑makers at UK importers and exporters, unpredictable currency movements are a constant challenge. A well‑structured FX policy can help protect margins and support planning. Below are several tools and techniques to consider. Always assess their suitability for your business and seek specialist guidance where appropriate.
Natural hedging and currency netting
If your business both pays suppliers and receives income in the same foreign currency, you can reduce exposure by matching inflows and outflows. This approach, often called natural hedging or currency netting, involves timing payments and collections to offset each other. It reduces the amount of currency you need to convert, lowering transaction costs and exposure to market swings.
Forward contracts
Forward contracts allow you to secure a forward rate today for a transaction that will occur in the future. This can provide certainty over future cash‑flows and protect against adverse currency moves. For example, if you know you must pay USD 1 million in three months, a forward contract fixes the sterling cost. This method helps budgeting and can protect margins if the pound weakens. However, forward contracts are binding derivatives and may require collateral if rates move against you. They also remove the opportunity to benefit if the market moves in your favour, so consider your risk appetite before entering a contract.
Market orders and FX options
Market orders allow you to set target exchange rates at which you will buy or sell currency automatically. This can help you manage volatility and react quickly to favourable movements. FX options give you the right, but not the obligation, to exchange currency at a pre‑agreed rate. Options provide more flexibility than forwards but involve a premium cost; they are often more suitable for larger transactions or where cash‑flow certainty is crucial. For many small and medium‑sized enterprises (SMEs), the cost of options may outweigh the benefits.
Why work with a specialist FX provider?
Some businesses rely on their banks for international payments, but banks may not always offer competitive rates or specialist risk‑management guidance. Working with a dedicated FX partner can deliver several advantages:
- Transparent pricing. FX specialists often provide pricing that reflects wholesale market rates and disclose any margins charged. At Millbank FX, there are no account or payment fees for qualifying customers; instead, we charge a margin on each currency conversion.
- Speed and efficiency. Dedicated payment platforms can settle transactions more quickly than some traditional bank processes. Faster settlement helps reduce exposure to intraday currency fluctuations and improves working‑capital management.
- Expert guidance. Access to market analysis and strategic advice helps you choose suitable hedging tools and timing. Our dealers monitor market events such as MPC meetings and can explain how policy changes might affect your specific exposures.
- Risk‑management tools. An FX provider can facilitate natural hedging, forward contracts and market orders while explaining the benefits and limitations of each. Where complex instruments such as options or swaps are involved, we explain the potential collateral requirements and ensure you understand the commitments.
Millbank FX is authorised by the FCA (Financial Conduct Authority) and your funds are safeguarded in segregated accounts.
Preparing for the decision and beyond
The upcoming MPC meeting is only one step in a longer journey toward normalised monetary policy. The committee has signalled that future moves will depend on inflation data, labour‑market trends and global events. Whether rates fall to 4.0 % in August or remain on hold, currency markets will adjust quickly to new information. Here are practical steps to take in the coming weeks:
- Review your currency exposures. Map out all foreign‑currency receivables and payables for the next 6–12 months. Identify mismatches and assess whether they are fixed (e.g., firm supplier contracts) or variable (e.g., forecast sales).
- Consider stress‑testing your margins. Calculate how a 1–3 % move in relevant currency pairs would affect profitability. For example, if your annual import bill is £2 million in euros, a 2 % rise in EUR/GBP would cost an extra £40 000.
- Plan your hedging strategy. Decide which exposures warrant hedging and which can be left open. If you use forward contracts, ensure you understand the collateral obligations and the impact on cash flow. Market orders can be useful for opportunistic currency purchases when rates hit favourable levels. FX options may be appropriate for larger transactions, but consider the premium costs and whether the flexibility they provide is worth it.
- Stay informed. Follow economic releases such as inflation, wages, retail sales and purchasing managers’ indices. Sudden shifts in these indicators can alter market expectations of future rate moves. Subscribe to market updates from trusted sources and attend webinars or consult your FX specialist to stay up to date.
Closing thoughts: balancing caution with opportunity
The Bank of England’s 7 August decision comes at a time of heightened uncertainty. Slowing growth, a cooling labour market and elevated inflation have left policymakers walking a tightrope. Businesses that import and export must remain alert to how these macro trends translate into exchange‑rate movements and financing conditions. A well‑designed FX strategy can help mitigate risks and support long‑term planning.
At Millbank FX, we specialise in helping UK companies manage currency exposure. We provide competitive pricing, clear guidance and a range of risk‑management tools tailored to your needs. Whether you’re paying overseas suppliers, receiving payments from customers abroad or planning investment in new markets, our team can explain your options and work with you to secure forward rates or build a hedging plan that aligns with your objectives. Contact our team for more details below.
Sources
⁶ Bank of England — “Why are interest rates high and how quickly might they fall?”
⁷ Equals Money — “When is the next BoE interest rate decision?”
⁸ The Guardian — “Bank of England forecast to cut interest rates amid rising unemployment and Trump tariffs”
⁹ Morningstar — “Will the Bank of England Cut Interest Rates on Aug. 7?”
¹⁰ Reuters — “Bank of England set to split again in face of inflation, job risks”
