Introduction to the Bank of England’s Decision
The Bank of England has decided to hold interest rates at 4% for the second time in a row. This decision was made ahead of the Chancellor’s Autumn Budget speech, which is set to take place on November 26. The decision to hold rates was anticipated by markets due to significant political and economic uncertainty. Despite this, the pound softened against major currencies, and the FTSE 100 gained after the decision.
Key Takeaways
- Five MPC members voted to hold rates at 4%, while four voted for a quarter-point cut.
- This is the last Bank of England meeting before the 2025 Autumn Budget.
- The markets’ focus now moves to the December BOE meeting, when interest rates could be cut.
The Bank of England’s Reasoning
The UK’s inflation has now peaked, according to the Bank of England, and CPI will not reach 4%, which would have been double the official inflation target. The Bank’s monetary policy members voted five-to-four in favor of a rate hold. Those who voted to hold, including Governor Andrew Bailey, cited ongoing concerns over inflation and a need to wait on the data.
The Impact on the Economy
The UK has been dealing with two economic issues this year: rising prices and low economic growth. These problems have created a dilemma for the Bank of England: higher rates can cool inflation, but lower rates may be needed to stimulate economic growth. In its statement, the Bank said that UK inflation has now peaked, and domestic factors were the primary influence on ratesetters’ views during its most recent vote. However, it remains concerned about food inflation.
Will the Bank of England Cut UK Interest Rates in December?
Financial markets and experts are now divided over whether the Bank of England will make a fourth and final rate cut for 2025 at its last meeting of the year in December. Morningstar’s senior international economist, Grant Slade, said, "A further uptick in the unemployment rate and weakening payrolled employee data point to a labor market which continues to soften. Additionally, fiscal policy settings are set to turn contractionary. Government spending is set to slow in the new year, while tax rises are widely anticipated in the upcoming Autumn Budget later this month." Slade expects the BoE to deliver one final 25 basis point interest rate reduction for the year at its December 2025 meeting.
Bank of England Interest Rate Decisions Since 2024
Interest rates in this cycle peaked at 5.25%, with the first rate cut coming on August 1, 2024. The Bank of England has cut rates three times in 2025 and four times in a year. The rates have been cut as follows:
- November 7, 2024: Rates cut by 25 basis points to 4.75%
- December 19, 2024: Rates held at 4.75%
- February 6, 2025: Rates cut to 4.5%
- March 20, 2025: Rates held at 4.5%
- May 8, 2025: Rates cut to 4.25%
- June 19, 2025: Rates held at 4.25%
- August 7, 2025: Rates cut to 4%
- September 18, 2025: Rates held at 4%
- November 6, 2025: Rates held at 4%
What Did the Bank of England Say About Inflation?
When the Office For National Statistics released its UK inflation data last month for September 2025, the Consumer Prices Index rose by 3.8%, which was less than expected. Earlier Bank of England forecasts had CPI hitting 4% this year. Nevertheless, this means inflation is still well above the Bank of England’s target of 2% annual CPI inflation.
Conclusion
In conclusion, the Bank of England’s decision to hold interest rates at 4% has significant implications for the UK economy. With inflation peaking and domestic factors influencing the Bank’s decision, it remains to be seen whether the Bank will cut interest rates in December. The markets are divided, and experts are predicting a possible rate cut in December or early 2026. As the UK navigates its economic challenges, the Bank of England’s decisions will be crucial in shaping the country’s economic future.
