The Bank of England is holding interest rates at 4% as per Rajel Reeves’ budget statement
The Bank of England voted narrowly to hold interest rates at 4%, smiling again to reduce stubborn inflation and the uncertainty of chachel rachel reeves’ budget later this month.
In a widely divided decision, the Monetary Policy Committee (MPC) voted 5-4 to maintain the current rate, with Governor Andrew Bailey casting the deciding vote. Bailey said he would “like to wait” before supporting further easing of monetary policy, underlining continued concerns about expectations for household prices and higher wage growth.
The bank expects inflation to remain above the 2% target until the second quarter of 2027, forecast to moderate from its current level of 3.8%. Authorities said consumer prices had “broken” but warned that persistent price pressures – particularly in services and food – continued to pose risks.
In its latest economic outlook, the Bank maintained its growth of 1.4% for 2025 and 2026, revising the current year but lowering the estimate for the following year within the tax market.
Other MPC members highlighted evidence of a cooling labor market and falling vacancies, which could reduce inflationary pressures. Others, however, warned that wage growth of 4.9% in the three months to August was too high to justify immediate cuts.
Bailey said the risk to the hips was “so much lower” than in August, the case of the reduction in strength was not yet evident.
“The high-level risk of inflation has been under pressure since August, and I see another policy easing if it is clearly established in the near future,” he said. “Instead of cutting the bank’s rate now, I would like to wait and see if the stability in the forecast is confirmed by the economic development coming this year.”
The Bank’s statement has dropped the word “cautious” on policy guidance, describing instead a “slow path” to lower rates – a subtle but important sign that a series of cuts could follow in 2026 if inflation continues to moderate.
The decision comes as markets await Reeves’ November 26 budget, which is expected to include new taxes to pay for public spending and reduce borrowing. The chancellor has written that “all must contribute” to the restoration of financial health – from previous states that only those with “broad shoulders” faced higher taxes.
Economists say any income tax hike announced later this month could be damaging, dampening spending power and allowing the Cards Fining Finance – and the MPC’s reported – size to keep its options open.
The bank also notes that a £25 billion increase in employer contributions (NICs) has fueled higher retail prices, with food prices expected to rise by 5.3% per year. Authorities said the impact of those changes had been largely felt 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 continued today by cutting rates to support the economy,” he said. “With flat inflation, sluggish growth, and a tepid labor market, the case for a recovery is clear.”
Daniel Austin, CEO and co-founder of Void Brokers, said the decision reflects a cautious stance between global stability and currency uncertainty.
“With the autumn statement approaching and policy in flux, it’s a little surprising the MPC held rates at 4%,” he said. “Limited limited lending means meaningful relief for homemakers remains far away. In property, the decision reinforces ‘waiting – and buyers – and buyers are stuck.’
Austin added that while reforming the rules and providing temporary levy relief could help restart mixed-use housing projects, “a clear, sustainable transition remains the key to unlocking broader capital”.
Despite signs of improvement in inflation, the bank’s latest moves underscore the fragile recovery. A combination of high borrowing costs, weak productivity growth, and financial stability has kept confidence in households and businesses alike.
With the Bank of England and the Treasury facing competing pressures – to exploit inflation without accelerating growth – the next few months could be decisive in shaping Britain’s economic trajectory into 2026.
