Policy pause: Bank of England holds rates at 4% ahead of UK budget; Bailey signals caution as inflation, growth pressures persist
Governor Andrew Bailey said the central bank remained confident that rates were on a “gradual path downwards” but stressed that policymakers needed clear signs of inflation returning to the 2% target before considering another cut.“We still think rates are on a gradual path downwards, but we need to be sure that inflation is on track to return to our two-percent target before we cut them again,” Bailey said after the decision, which was widely expected by markets.In a close 5–4 vote, the BoE’s Monetary Policy Committee chose to hold rates, with four members supporting a reduction to 3.75%.
The move comes as annual inflation stands at 3.8% and economic growth shows signs of stagnation.A rate cut before the budget could have provided relief to Prime Minister Keir Starmer’s Labour government, which faces political and fiscal challenges ahead of finance minister Rachel Reeves’s November 26 budget.
Reeves has already warned of “necessary choices” as Britain grapples with high debt and inflation.“As I take my decisions on both tax and spend, I will do what is necessary to protect families from high inflation and interest rates,” she said earlier this week.Britain’s retail banks typically pass on BoE rate cuts to customers, lowering borrowing costs for households and businesses.
The central bank last reduced rates in August amid concerns over the economic impact of US tariffs on the UK.Thursday’s decision marks the fifth hold since the BoE began a trimming cycle in August 2024, a month after Labour’s general election victory.
