The Bank of England narrowly voted to keep interest rates at 4% and has suspended further rate cuts amid stubborn inflation and growing uncertainty ahead of Chancellor Rachel Reeves’ crucial Budget later this month.
In a narrowly split decision, the Monetary Policy Committee (MPC) voted 5-4 to maintain the current interest rate, with Governor Andrew Bailey casting the vote. Bailey said he would “prefer to wait” before advocating further monetary easing, citing ongoing concerns about household inflation expectations and elevated wage growth.
The bank expects inflation to remain above its 2% target through the second quarter of 2027, forecasting a gradual decline from the current 3.8%. Officials said consumer price inflation had reached its “peak” but warned that ongoing price pressures – particularly in services and food – continued to pose risks.
In its latest economic outlook, the bank maintained its 1.4% growth forecast for 2025 and 2026, revising slightly upward for the current year but lowering next year’s estimate amid weakening demand and a slowing labor market.
Some MPC members highlighted signs of a slowing labor market and declining job vacancies that could ease inflationary pressures. But others warned that wage growth of 4.9% in the three months to August was still too high to justify immediate cuts.
Bailey said that while inflation risks were “less pressing” than in August, the case for policy easing was not yet proven.
“Since August, the upside risks to inflation have become less pressing and I expect further policy easing as disinflation becomes more firmly established in the period ahead,” he said. “Instead of cutting the key interest rate now, I would rather wait and see whether the durability of disinflation is confirmed in the coming economic developments this year.”
The bank’s statement dropped the word “cautious” from its policy guidance and instead described a “gradual downward path” for interest rates – a subtle but clear signal that a series of cuts could follow in 2026 if inflation continues to ease.
The decision comes as markets await Reeves’ Nov. 26 budget, which is expected to include new tax hikes to fund public spending and reduce borrowing. The Chancellor has suggested that “everyone must play a part” in restoring financial health – a departure from previous promises that only those with “the broadest shoulders” would face higher taxes.
Economists expect any income tax hikes announced later this month could be disinflationary, reducing consumers’ purchasing power and potentially allowing the Bank to cut rates earlier in 2026. However, uncertainty over financial policy – and the size of a reported £30bn funding gap – is prompting the MPC to keep its options open.
The bank also noted that last year’s £25 billion increase in employers’ national insurance contributions (NICs) had impacted higher supermarket prices and food inflation was expected to reach 5.3% by the end of the year. Officials said the impact of these changes has now been largely absorbed by consumers.
Economists were divided over the bank’s decision. William Ellis, senior economist at IPPR, said the MPC had missed an opportunity to support growth.
“Monetary policy remains tight and the bank should have gone further today and cut interest rates to support the economy,” he said. “Given flat inflation, sluggish growth and a cooling labor market, the case for easing is clear.”
Daniel Austin, CEO and co-founder of ASK Partners, said the decision reflected a cautious stance amid global volatility and fiscal uncertainty.
“As the Autumn Statement approaches and policy changes, it is no surprise that the MPC has kept rates at 4%,” he said. “High fixed-rate mortgages mean that meaningful relief for homeowners is still some way off. In real estate, the decision reinforces the ‘wait-and-see’ mood – buyers are hesitant and developers are holding back.”
Austin added that while easing planning rules and providing temporary tax relief could help restart stalled housing projects, “a significant, sustained fall in inflation remains key to enabling broader investment.”
Despite signs of progress on inflation, the bank’s latest move underscores a fragile recovery. A combination of high borrowing costs, weak productivity growth and the threat of fiscal tightening have dampened confidence among households and businesses alike.
With both the Bank of England and the Treasury facing competing pressures – to contain inflation without curbing growth – the next few months could prove crucial in shaping Britain’s economic trajectory between now and 2026.
