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Bank of England holds rates in knife-edge vote that hints at December cut
Published by Global Banking & Finance Review®
Posted on November 6, 2025
5 min readLast updated: January 21, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on November 6, 2025
5 min readLast updated: January 21, 2026
The Bank of England held rates steady, hinting at a December cut amid inflation concerns. The MPC voted 5-4 to maintain the rate at 4.0%.
By William Schomberg, David Milliken and Suban Abdulla
LONDON (Reuters) -The Bank of England kept borrowing costs on hold on Thursday, but a narrow vote and signs that Governor Andrew Bailey might soon join those seeking a rate cut increases the chances of a December move after the government's budget later this month.
Mindful of Britain's still-high headline inflation rate, the nine-strong Monetary Policy Committee voted 5-4 to keep the central bank's benchmark Bank Rate at 4.0%, the BoE said.
Most economists polled by Reuters last week had predicted a 6-3 decision by the MPC to leave Bank Rate unchanged.
The MPC saw a bigger risk of weaker demand in the economy while the chance of inflation getting stuck too high had diminished, the central bank said.
While Bailey was among those who decided to keep borrowing costs unchanged, he was the only one of the five who felt that overall inflation risks had moved down.
He said the inflation outlook was at "quite an important moment" but he felt there was "value in waiting for further evidence" in upcoming economic developments this year.
Deputy Governors Sarah Breeden and Dave Ramsden were in the minority of four seeking a rate cut.
The pound shed around a third of a cent against the U.S. dollar before recovering and short-dated British government yields fell by a relatively modest two basis points after the announcement.
The MPC's next rate decision is due to be announced on December 18.
"Key data releases on inflation and the labour market, in addition to more clarity on fiscal policy following the budget, will likely be enough to persuade a majority of MPC members to vote for a rate cut" in December, KPMG UK Chief Economist Yael Selfin said.
Deutsche Bank's Chief UK Economist Sanjay Raja said he also believed the BoE would cut rates next month and lower Bank Rate further to 3.25% by the summer.
"The big question now is whether there is enough dovish momentum in the data to back a faster reduction in Bank Rate over the first half of next year," Raja said.
BOE SAYS UK INFLATION HAS PEAKED
Britain's inflation of 3.8% remains the highest among the Group of Seven major advanced economies and the BoE's benchmark interest rate is double the European Central Bank's, adding to the challenge for the government to speed up the economy.
However, inflation unexpectedly held steady in September and recent jobs data has also hinted at weakening price pressures.
The MPC said it believed inflation had peaked and would fall in data for October and November as weaker economic growth and a worsening jobs market took their toll on demand.
"We still think rates are on a gradual path downwards, but we need to be sure that inflation is on track to return to our 2% target before we cut them again," Bailey said.
Thursday's decision represented the first pause in the BoE's already-gradual, once-every-three-months pace of rate cuts which started in August 2024.
The BoE forecast that inflation would remain above its 2% target until the second quarter of 2027 - the same as in August - although it did forecast inflation would be slightly lower then, at 1.9%, and also flagged the weakness in the jobs market.
In another sign of its worries about an economic slowdown, the central bank expressed concern that households might not use their high levels of savings to spend more.
GUIDANCE CHANGE
As part of a wider overhaul of how it explains its thinking, the MPC tweaked its key message about the outlook for rates.
A line from previous statements that it thought "a gradual and careful approach" to cutting rates was appropriate was replaced by the phrase: "If progress on disinflation continues, Bank Rate is likely to continue on a gradual downward path."
The decision to keep rates on hold was not a surprise to investors. Pricing of interest rate futures on Wednesday had implied only a one-in-three chance of a quarter-point cut.
Bailey said that current market pricing was close to "a fair description of my position at present".
However, the 5-4 vote split and signs Bailey might soon switch camps was likely to boost bets on a rate cut in December.
Investors were pricing a roughly 55% chance of a reduction in Bank Rate next month.
By then, the MPC will have seen official inflation and jobs data for October and November and it will know the extent of tax increases which are widely expected in finance minister Rachel Reeves' budget.
She is expected to announce broad tax increases in her budget on November 26, possibly weighing on the economy.
For the first time the BoE published summaries of the views of individual MPC members as part of a revamp of its forecasting process and the way it explains its thinking after being widely criticised when British inflation topped 11% in October 2022.
It forecast economic growth of 1.5% for this year, up from 1.25% in its previous forecast, and 1.2% for 2026, little changed from the August projections.
(Writing by William Schomberg; Editing by Hugh Lawson)
The Bank of England is the central bank of the United Kingdom, responsible for issuing currency, managing monetary policy, and ensuring financial stability.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power.
The Monetary Policy Committee (MPC) is a group within the Bank of England that sets the official interest rate and makes decisions regarding monetary policy.
The Bank Rate is the interest rate at which the Bank of England lends to financial institutions, influencing overall economic activity and inflation.
Interest rates are the cost of borrowing money, expressed as a percentage of the amount borrowed, affecting loans, mortgages, and savings.
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