Introduction to Interest Rates
The Bank of England’s Monetary Policy Committee (MPC) is set to announce its latest interest rate decision on November 6. The MPC, led by Bank of England governor Andrew Bailey, faces a tricky balancing act. On the one hand, the economy is weakening: UK wage growth is slowing, while unemployment climbs. On the other hand, inflation is still nearly double the Bank’s target rate of 2%, at 3.8%.
What is the Link Between Inflation and Interest Rates?
One of the most important economic metrics used by the Bank of England to determine their decision on interest rates is the rate of inflation. The central bank has a mandate to keep inflation at the target level of 2%. This is done by pulling various monetary policy levers – the most obvious being the base rate. Broadly speaking, the BoE will raise interest rates when inflation is too high, and lower them when inflation is too low.
When Will Inflation Fall?
Though inflation was almost double the Bank of England’s target in September, most analysts expect that things will only get better from here on. The Bank of England predicts inflation will peak in September and continue on a downward trajectory throughout 2026 before settling at around 2% in early 2027. This view is shared by the economists surveyed by the Treasury each month, all of whom agreed that the average level of inflation would be lower in Q4 2026 than Q4 2025.
Economists Expect MPC to Hold UK Interest Rates at 4%
Economists expect the MPC to hold interest rates at 4% tomorrow. There are various factors at play in the MPC’s decision. As we’ve seen, inflation might be about to fall – but it hasn’t yet. The economy is plugging away, but is far from thriving. "We think a majority of committee members will want to see much clearer evidence of downside surprises in the data being sustained and the Agents’ findings on next year’s pay deals before voting to cut Bank Rate again," said Edward Allenby, senior economist at Oxford Economics.
Creditspring: ‘Costs Aren’t Going to Go Down Overnight’
It can be easy to over-emphasize the importance of the MPC’s regular meeting to dictate interest rates for regular households. The decision – whether interest rates are hiked, held, or cut – are certainly important for much of the economy, but ordinary Brits often will not feel much of a difference either way, says Tamsin Powell at Creditspring. "Whether the Bank of England will hold or reduce rates on Thursday, the message to households remains clear that every day costs aren’t going to go down overnight. Inflation remains stuck at 3.8%, and with further tax rises now expected as part of the Autumn Budget, many families and households will be facing a double squeeze on living costs."
Where Have Interest Rates Gone in the Last 12 Months?
Interest rates have been on a downward trajectory since August 2024, when the MPC voted to cut the base rate for the first time since March 2020. Since then, the bank rate has been cut five times, going from 5.25% in August 2024 to 4% today. In this most recent set of interest rate cuts, the MPC has maintained a "gradual and careful" approach. Cuts have more or less followed a quarterly rhythm so far, but this trend is not necessarily going to continue if the MPC decides that the economic circumstances do not warrant a rate cut.
When Does the Bank of England Announce UK Interest Rates?
The Bank of England’s next interest rate decision will be announced tomorrow (6 November) at midday. This is the penultimate base rate meeting of 2025, with the final meeting of the year coming just in time for Christmas on 18 December. The MPC meets roughly every six weeks.
Conclusion
In conclusion, the Bank of England’s interest rate decision is a crucial event that can have a significant impact on the economy. With inflation still high and the economy weakening, the MPC faces a difficult decision. While some experts expect a rate cut, others believe that the MPC will hold interest rates at 4%. Whatever the decision, it is essential for households and businesses to stay informed and plan accordingly. The Bank of England’s decision will be announced tomorrow, and we will provide live coverage and analysis of the event.
