Bank of England Keeps Interest Rates on Hold
In a knife-edge vote, with Governor Andrew Bailey casting the deciding ballot, the MPC (Monetary Policy Committee) voted 5–4 to keep interest rates on hold at 4.00%. It was a narrower margin than expected, with one poll of economists prior to the announcement predicting a 6–3 vote in favour of keeping borrowing costs unchanged. Indeed, two Deputy Governors of the Bank of England, David Ramsden and Sarah Breeden, along with the rest of the minority, voted for a 25-basis-point rate cut. It was also the first time that Sarah Breeden voted against the majority since joining the MPC in 2023.
Although inflation remains almost double the Bank’s target, officials announced after the vote that they believe inflation has now peaked at 3.8%. The MPC also signalled that rates could fall to 3% by 2028, while some analysts predict that cuts could come sooner. Experts suggest that Governor Bailey’s deciding vote was influenced by several factors, one being his desire not to appear biased towards the government, particularly with the Chancellor’s Budget just around the corner. It is also thought he preferred to wait and see what fiscal measures the Chancellor will announce, especially as she has been signalling a short-term increase in taxes.
Minutes released from the MPC meeting showed that Governor Bailey was the most dovish among the majority. In a written statement, the Governor said: “We still think rates are on a gradual downward path, but we need to be sure that inflation is on track to return to our 2% target before we cut them again”.
A number of market experts have described this as a “dovish hold”. Governor Bailey also remarked that “upside risks to inflation have become less pressing since August”. Analysts suggest that another reason for maintaining rates was the Governor’s preference to wait for further evidence that inflation is continuing to decline.
Interestingly, several financial experts believe that the Bank of England’s latest inflation forecast has paved the way for an interest rate cut (estimated at 25 basis points) when the MPC meets again on 18th December. Data shows that the Bank of England has cut interest rates five times since Labour won the general election on 4th July 2024. Following today’s decision, Governor Bailey noted that “the MPC would have an opportunity to consider the Budget before its 18th December meeting”.
If, as suspected, the Budget includes tax increases, analysts predict that weaker demand could follow, pushing inflation lower in 2026 and thereby creating a plausible case for a rate cut in December.
