The Bank of England has decided to keep interest rates unchanged at 4%, while slowing the pace of its “quantitative tightening” programme in the year ahead to avoid unsettling bond markets that influence government borrowing costs.
In its latest decision, the nine-member monetary policy committee (MPC) voted 7-2 in favour of holding rates steady. This comes after five consecutive cuts since summer 2024, including a reduction just last month.
The move was widely expected by markets, as inflation remained stubbornly high at 3.8% in August—almost double the central bank’s 2% target.
The Bank governor, Andrew Bailey, said: “Although we expect inflation to return to our 2% target, we’re not out of the woods yet so any future cuts will need to be made gradually and carefully.”
Bank policymakers are weighing the challenge of rising inflation, fuelled partly by higher food costs, against a weakening labour market, where unemployment has climbed to its highest level in four years.
According to the minutes of Thursday’s meeting, the MPC noted that its estimates point to zero employment growth, which it said was “partly attributable to the impact of increases in employers’ national insurance contributions (NICs)”. Reeves’s £25bn NICs hike in last year’s budget drew sharp criticism from business groups.
Meanwhile, two committee members, Swati Dhingra and Prof Alan Taylor, pushed for an additional quarter-point rate cut this month. The MPC’s choice to keep rates unchanged stands in contrast to the US Federal Reserve, which lowered rates by a quarter-point on Wednesday in its first cut since December.
