Take Two: Bank of England cuts rates after split vote; Eurozone business activity expands

What do you need to know?

The Bank of England (BoE) cut its benchmark interest rate by 25 basis points (bp) to 4%, its lowest level since March 2023 and the fifth cut since last August. Failure to reach a majority decision led to an unprecedented second vote, with five policymakers ultimately voting in favour of the cut and four opting for no change. Initially, one had voted for a larger 50bp cut. The BoE said it would continue to take a “gradual and careful approach” to future policy decisions, and raised its inflation forecast to reflect higher food prices.

Around the world

Eurozone business activity continued to expand for the seventh consecutive month in July, driven by a rise in services, though the rate of growth remained sluggish. The composite Purchasing Managers’ Index (PMI), which includes both services and manufacturing data, increased to 50.9, a four-month high, from June’s 50.6. A reading above 50 indicates expansion. Elsewhere, US business activity saw a marked expansion in July - the composite PMI rose to 55.1 from 52.9 in June, largely thanks to the services sector. Activity continued to expand in China, albeit at a slower pace than the previous month as the composite PMI eased to 50.8 from 51.3.

Figure in focus: 3.3%

Global electricity demand is forecast to grow by 3.3% in 2025 and 3.7% in 2026, due to the increasing need to power factories, data centres, air conditioning and electric vehicles, according to the International Energy Agency (IEA). This represents one of the fastest sustained growth rates in over a decade, despite persistent economic headwinds, the IEA said. Renewable energy, natural gas and nuclear power are expected to meet the additional demand, with renewable energy forecast to overtake coal as the world’s largest source of electricity by 2026.

Words of wisdom:

Capital Expenditure: Capital expenditure (capex) refers to the money companies spend to purchase, maintain and upgrade their assets like equipment and property. Four US technology giants - Alphabet, Amazon, Meta and Microsoft – have together spent $155bn on capex so far this year, primarily on the development of artificial intelligence (AI), according to the Guardian newspaper. This figure exceeds the US government’s spending on education, training, employment and social services over the same period, it said. Growing demand for AI infrastructure including servers and data centres means tech firms’ capex is expected to grow significantly next year. Separately last week, President Donald Trump announced a 100% tariff on semiconductors and computer chips produced outside the US.

What’s coming up?

On Tuesday, the Reserve Bank of Australia meets to decide on interest rates, while the US issues inflation data. Elsewhere on Tuesday, the latest Eurozone ZEW Economic Sentiment Index is published, which reflects expectations of the bloc's six-month economic outlook. The Eurozone and UK each publish their second quarter GDP growth rate on Thursday, followed by Japan on Friday.