The Bank of England voted on Thursday to keep interest rates steady at 4%, balancing sticky inflation pressures with a weak economic backdrop.
The Monetary Policy Committee (MPC) opted by a 7-2 vote split to hold its benchmark rate unchanged, marking a pause after August’s 25 basis point reduction.
While the decision was widely expected, markets were closely watching the vote and the central bank’s guidance for signals ahead of its November meeting.
The announcement comes a day after fresh data showed UK inflation held firm at 3.8% in August, unchanged from July.
Core inflation edged slightly lower to 3.6%, while services inflation cooled to 4.7% from 5% a month earlier.
Policymakers expect inflation to reach 4% in September before easing gradually toward the 2% target by early 2026.
But the combination of stagnant growth and persistent price pressures has left the central bank wary of moving too quickly on further cuts.
Growth stagnates and the job market cools
The latest growth figures showed the economy flatlining in July, fueling concerns that a slowdown is taking hold.
At the same time, the jobs market is losing momentum, with wage growth cooling in recent months.
The Bank has highlighted both trends as important factors in its decision-making.
A softer labour market is expected to relieve inflationary pressure, yet the risk of prolonged stagnation raises the stakes for policymakers as they balance growth and price stability.
The next test for the central bank will be its November meeting, scheduled just weeks before the government unveils its Autumn Budget on November 26.
Finance Minister Rachel Reeves is widely expected to announce tax rises aimed at closing the fiscal gap, a move that could further influence the Bank’s policy stance.
Economists urge patience on further cuts
Analysts said Thursday’s hold underscores the MPC’s cautious approach.
Sanjay Raja, chief UK economist at Deutsche Bank, noted that while August’s inflation report was more encouraging than July’s, policymakers will need clearer evidence before easing further.
“The good news is that August inflation data has corrected some of the upside surprise we saw last month. The bad news is that CPI has maybe a little further to go before hitting its peak,” he said.
Raja added that the committee would likely prefer “a larger accumulation of evidence before dialling down restrictive policy again.”
Deutsche Bank now expects a slightly longer pause before the next rate cut, with policymakers wary of misreading temporary price movements as signs of a broader downtrend.
Mortgage market shows resilience despite pause
Despite the Bank’s decision, the housing and mortgage markets have shown signs of resilience.
Stephanie Daley, director of partnerships at mortgage broker Alexander Hall, said lenders had already adjusted in anticipation of Thursday’s outcome.
“The good news is that previous rate cuts have already brought about a greater degree of confidence amongst lenders and buyers,” she said.
“As a result, we’ve seen a greater range of mortgage products introduced in recent months to help drive market activity-from lower deposit offerings to higher loan to income multiples.”
Daley acknowledged that the hold “might not be the decision many wanted to see,” but argued the market remains well positioned heading into the year’s final quarter.
Jonathan Samuels, CEO of Octane Capital, struck a more cautious tone, warning that the economy remains “in a state of limbo.”
“With inflation stuck at 3.8% and still some way off the Bank of England’s 2% target, wage growth now slowing, and GDP growth flat, the economy remains in a state of limbo,” he said.
“Whilst the property market is standing firm, any notable momentum is unlikely to materialise until we see stronger signals of sustained economic recovery.”
Housing market braces for slow winter
Property experts warned that the latest decision could prolong sluggish activity in the housing sector.
Verona Frankish, CEO of estate agency Yopa, said the rate hold would provide stability but not necessarily spark demand.
“This could result in a far longer winter than many home sellers may have liked, with the chances of Santa leaving a sale completion under the tree this December looking far slimmer,” she said.
However, Frankish noted that “the long-term picture is one of continued house price growth and a steady and stable level of transactions,” suggesting buyers and sellers who remain committed will still find opportunities to transact before the year’s end.
Looking ahead to November
Attention will now turn to the MPC’s November meeting, which falls just before the government’s budget announcement.
Analysts say the timing could prove significant, as fiscal tightening in the form of tax rises may give the central bank more room to ease monetary policy in 2025.
For now, however, policymakers appear committed to a wait-and-see strategy, weighing stubborn inflation against mounting signs of a slowdown.
At 4%, interest rates remain at their lowest level since early 2023, but the central bank has made clear that it is not ready to declare victory on inflation just yet.
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