Thu, 06 Nov 2025

Thu, 06 Nov 2025 Will Bank of England governor play Santa or Scrooge on interest rates?

The interest rate decision was made by the narrowest of margins, meaning all eyes are now on the Bank's December meeting.
The Bank of England has maintained interest rates at 4% by the narrowest of margins, with the decision made by the rate-setting panel based on their view that inflation has peaked. Governor Andrew Bailey stated that he wants to see if forthcoming developments confirm this view before considering a cut in rates. The Bank noted that last year's Budget measures, including an increase in employer National Insurance Contributions and minimum wages, have contributed to price pressures over the past year. However, it also acknowledged that the labour market has been weak, which could play a part in future decisions on interest rates. The upcoming Budget is set to be a key factor in determining future decisions on interest rates, with Chancellor Rachel Reeves considering both tax rises and spending cuts. The Bank's report suggests that direct measures on bills may ease price pressures, but also warns of the impact of tax rises on consumers' pockets. The economy is expected to grow by 1.2% in 2026, down from 1.5% this year, with consumer spending remaining cautious. Labour costs remain a key uncertainty for employers and consumers, which the rate-setting panel will need to evaluate when assessing the impact of Budget policies. In the short term, rates are expected to continue on a "gradual downward path", but some members of the rate-setting panel remain nervous about lingering inflation pressures. Economists predict that if interest rates do come down, it may happen in February or later, with homeowners facing rising costs when renewing their mortgages despite rates remaining higher than a few years ago. Meanwhile, millions could be entitled to compensation as a result of commission arrangements between lenders and dealers, and some experts think the government may break its promise not to increase income tax, NI, or VAT for working people.
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