The Bank of England has kept UK interest rates steady at 4%, with governor Andrew Bailey cautioning that “we’re not out of the woods yet” when it comes to inflationary pressures. Analysts had widely expected rates to remain unchanged, as prices continue to rise at nearly twice the Bank’s 2% target. Although policymakers still anticipate inflation will fall back to that level, uncertainty remains over when further rate cuts will be made.
Rates have been lowered five times since August 2024 after hitting a peak of 5.25%, but stubbornly high food prices have kept inflation elevated since spring. At the latest meeting, two members of the Monetary Policy Committee (MPC) voted in favour of a further reduction to 3.75%, highlighting the ongoing split over how quickly to ease borrowing costs. The MPC is due to meet twice more before the end of the year, with any future cuts dependent on evidence of cooling price pressures.
Alongside its decision on rates, the Bank announced it would slow the pace of quantitative tightening—the process of selling government bonds it built up during the financial crisis and the pandemic. The annual reduction of around £100bn will be trimmed to £70bn from October, a move Bailey said would help minimise disruption in gilt markets.
The decision comes just weeks before Chancellor Rachel Reeves delivers her autumn Budget on 26 November. The rising cost of servicing government debt could limit her flexibility on tax and spending decisions, with the Bank warning that business sentiment remains subdued as firms await clarity on future fiscal policy.
