The Bank of England’s latest policy meeting ended in a knife-edge decision that keeps the benchmark rate at 4% – but also signals the tightening cycle may be nearing its end. In a finely balanced 5-4 vote, Governor Andrew Bailey sided with the majority to hold rates steady, though his comments hinted that the next move could be downward as early as December.
The split decision underscores a shift within the Monetary Policy Committee (MPC) from inflation vigilance toward growth caution. Bailey noted that while inflation, currently at 3.8%, remains above the 2% target, the risks of persistent price pressures are receding. The governor described the current juncture as “quite an important moment,” arguing for patience until further data on jobs and prices arrives ahead of the December meeting.
Two deputy governors, Sarah Breeden and Dave Ramsden, joined two external members in calling for a cut, citing softer demand and easing inflation expectations. For Breeden, it marked her first dissent since joining the MPC two years ago – a sign of growing concern that restrictive policy could overstay its usefulness. The Bank now expects the UK economy to grow just 1.2% next year, with unemployment edging higher as tighter fiscal policy and weak investment weigh on momentum.
Markets quickly recalibrated. Sterling slipped before recovering, while gilt yields eased slightly, reflecting investor confidence that the rate peak has passed. Futures now price a roughly 65% chance of a cut at the next meeting, scheduled for 18 December – shortly after Chancellor Rachel Reeves unveils a budget expected to tighten fiscal conditions through tax rises.
Economists see scope for a measured easing cycle if inflation continues to cool. Deutsche Bank forecasts three rate cuts by mid-2026, bringing Bank Rate down to 3.25%. Yet policymakers remain cautious about declaring victory. For now, the message from Threadneedle Street is one of restraint – acknowledging progress against inflation, but wary of moving faster than the evidence allows.
If December brings confirmation of weaker growth and contained prices, the long-awaited pivot may finally begin – not as a rush to stimulus, but as a carefully judged recalibration toward neutrality.
