The Bank of England (BoE) has announced it will keep its base rate at 4%.The vote of the Monetary Policy Committee (MPC) was tightly split, with five members favouring a hold and four voting for a cut.
The decision reflects caution among rate setters on inflation and other areas of the UK economy. The BoE is waiting for clearer evidence that inflationary pressures are receding before moving forward with more cuts.
Headline consumer price index (CPI) inflation in the UK currently sits at 3.8% according to the Office for National Statistics (ONS), well above the BoE’s 2% target, while economic growth remains lacklustre.
Meanwhile, the BoE has persistent concerns about wage growth, service-sector inflation and the resilience of consumer spending.
In commentary accompanying the decision, the BoE signalled that while inflation may have peaked, it is not yet confident of a sustained downward path.
Governor Andrew Bailey emphasised that the outcome and durability of ‘disinflation’ would guide the timing of future cuts.
Why the bank held rates now
There are several reasons behind the decision to hold. Although inflation has shown signs of moderating, it remains significantly above target while the labour market continues to show relative strength, reducing the Bank’s confidence that inflation is on a downward path.
Meanwhile, growth is sluggish. The BoE’s own forecasts point to a slowdown in GDP growth to around 1.2% in 2026. The BoE indicated in its report that it would re-evaluate the decision in December, once the Government had announced its new Budget on 26 November.
Holding now also gives the Bank the option of cutting later if conditions for a cut improve but avoids the risk of acting too soon and having to reverse course in the face of persistent inflation.
The narrow vote margin suggests the balance of factors is very tight, with the trade-off being between supporting growth and guarding against inflation.
The Autumn Budget
The Autumn Budget scheduled for 26 November will be important for several reasons. From the BoE’s point of view, the Budget offers an important source of information on fiscal-monetary interactions.
It will set out the Government’s tax, spending and borrowing plans for the coming years. These measures all directly impact demand, inflation and economic growth.
With public borrowing under pressure and investment market scrutiny high, the Government may announce tax rises or slower spending growth, each of which could dampen demand and ease inflationary pressures.
If fiscal policy turns restrictive (higher taxes or lower spending) then the BoE may feel more confident in cutting rates without risking inflation. Conversely, a fiscally expansive budget (for example, large spending increases without offsetting revenue) could prompt the BoE to tighten or delay cuts.
The timing is such that the BoE’s next meeting after the Budget gives the MPC a chance to assess the fiscal changes alongside incoming wage, inflation and growth data before deciding its next step.
Mortgage-holders, savers and investors will want to watch not only the BoE’s statements but also the Government’s Budget decisions.
It is important not to act on rumours or uncertainty. If in any doubt, speak to a financial planner who can help you decide the best course of action (if any) to ensure long-term financial stability for your plans.
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