The Bank of England kept its policy rate at 4.0% after a close 5-4 vote, with signs that Governor Andrew Bailey may support a rate cut after the budget later this month.
The bank said British inflation had peaked and was expected to decline in the coming months, although it remains the highest among G7 economies. Bailey stressed that the BoE needs to be confident that inflation is on track to 2% before continuing with a rate cut.
The decision marks the first pause in the BoE’s quarterly rate cut cycle since August 2024. The bank maintained its inflation forecast of above 2% until the second quarter of 2027 and warned of labor market weakness and household reluctance to spend.
The MPC also changed its guidance statement, saying that if disinflation persists, policy rates will continue to fall gradually. Markets are now pricing in a 60% chance of a rate cut at the December meeting.
The November 26 Budget is expected to introduce tax increases that could weigh on the economy. The BoE is now forecasting growth of 1.5% this year and 1.2% in 2026, with Bailey expected to explain the policy decision at a press conference.
