{"id":546216,"date":"2025-11-03T12:34:30","date_gmt":"2025-11-03T12:34:30","guid":{"rendered":"https:\/\/www.europesays.com\/uk\/546216\/"},"modified":"2025-11-03T12:34:30","modified_gmt":"2025-11-03T12:34:30","slug":"bank-of-england-braced-for-tough-call-on-interest-rates","status":"publish","type":"post","link":"https:\/\/www.europesays.com\/uk\/546216\/","title":{"rendered":"Bank of England braced for tough call on interest rates"},"content":{"rendered":"\n

The Bank of England<\/a> (BoE) faces one of its most finely balanced policy decisions in months this week, as signs of easing inflation and a cooling labour market fuel debate over whether to lower interest rates again.<\/p>\n

Traders expect the Monetary Policy Committee (MPC) to hold interest rates at 4% on Thursday, according to market pricing, which implies a less than one-in-three chance of a quarter-point cut. The Bank has already reduced rates five times since last August as it seeks to bring inflation back to its 2% target while supporting faltering growth.<\/p>\n

Read more: <\/strong>How to protect yourself against tax rises in the budget<\/strong><\/a><\/p>\n

Some analysts, however, believe divisions among policymakers could produce another split vote, as unemployment edges higher<\/a> and GDP growth remains sluggish<\/a>. The prospect of a tightening fiscal stance in November\u2019s budget <\/a>has further strengthened arguments for a softer monetary policy stance.<\/p>\n

\u201cThe Bank looks likely to keep rates on hold on 6 November, despite better inflation and wage news,\u201d said James Smith, developed markets economist, UK at ING. \u201cThe committee is deeply divided, and we don\u2019t expect clear signals on the Bank\u2019s next steps. But assuming the autumn budget goes as expected, a December rate cut now looks more likely than not.\u201d<\/p>\n

The BoE’s most recent quarter-point reduction<\/a>, in August, passed only after two rounds of voting and a narrow 5-4 split. A similar outcome could hinge on whether BoE governor Andrew Bailey decides to back another cut rather than steady policy.<\/p>\n

Headline inflation remains high at 3.8%<\/a>, surpassing the 2.1% rate in the eurozone<\/a> and the 3% rate in the US.<\/p>\n

Kathleen Brooks, research director at XTB, said a surprise cut could not be ruled out given the run of weak data. \u201cInflation remains at 3.8%, still unacceptably high for the BoE, in our view. However, crucially, the BoE expected inflation to peak in September at 4%,\u201d she said. \u201cIt will be interesting to see if the BoE downgrades its CPI forecast due to this, since inflation never reached its peak of 4%.\u201d<\/p>\n

Brooks added that if the Bank signals inflation could reach the target before 2027, \u201cthis could give the green light for a rate cut in February\u201d. Even a dovish tone without immediate action, she said, might have limited downside for sterling, \u201cdue to recent weakness in the pound and the sharp decline in UK gilt yields.\u201d<\/p>\n

Bailey said in September that the pace of rate cuts, which have been delivered roughly every three months since August 2024, was now \u201cmore uncertain\u201d.<\/p>\n

Simon French, chief economist at Panmure Gordon, said the MPC was likely to wait for chancellor Rachel Reeves\u2019s budget on 26 November before taking further steps. \u201cInflation expectations amongst businesses and households remain elevated,\u201d he said. \u201cThe option cost for the MPC of waiting to their December meeting \u2014 and a degree of fiscal clarity that will then be available \u2014 is low.\u201d<\/p>\n

Story Continues <\/p>\n

Read more: <\/strong>What we know about Rachel Reeves’ budget so far<\/strong><\/a><\/p>\n

French added that if fiscal discipline holds, the government could \u201ctranslate its encouraging talk on controlling inflation into budget action\u201d that paves the way for \u201cup to 100bp of UK interest rate cuts in 2026, and a potential cyclical upswing\u201d.<\/p>\n

Analysts at Investec advised the committee to wait for another round of inflation data before taking action.<\/p>\n

At the same time, Andrew Wishart, senior UK economist at Berenberg, expects a 6-3 vote to keep the Bank Rate unchanged. \u201cThe risk that robust nominal demand encourages companies to rebuild their profit margins by raising prices outweighs the downside surprise in wage growth in August and in CPI inflation in September, in our view,\u201d Wishart said. \u201cAs current interest rates do not restrain aggregate demand significantly, we expect core inflation to remain sticky until early 2026.\u201d<\/p>\n

Markets are pricing a one-in-three chance of a rate cut this week, rising to two-in-three by year-end.<\/p>\n

Several banks, including Goldman Sachs (GS<\/a>) and Nomura, are predicting a narrow majority in favour of a quarter-point reduction to 3.75%, which would mark the BoE’s sixth cut since last summer and bring borrowing costs to a near three-year low. The move would echo the US Federal Reserve\u2019s quarter-point reduction earlier this week, its second consecutive cut.<\/p>\n

Read more: <\/strong>Bank of England chief economist cautions against cutting interest rates ‘too fast’<\/strong><\/a><\/p>\n

\u201cIn a span of mere weeks, there has been a decisive shift in UK market narratives,\u201d analysts at BNP Paribas said. \u201cFears of deeply entrenched domestic inflationary pressures have given way to concerns about faster-than-expected labour market cooling and overly restrictive monetary policy.\u201d<\/p>\n

Nomura economists added: \u201cWe expect the Bank of England to cut rates by 25bp at its 6 November meeting and to remove from its guidance any reference to interest rates being \u2018restrictive’. We believe weaker data over the past month support a rate cut, but that there is probably only one voting configuration (5-4) that can deliver it.\u201d<\/p>\n

\u201cThe case for a quarter-point rate cut has strengthened materially on the back of a dovish round of data,\u201d said Sanjay Raja, chief UK economist at Deutsche Bank.<\/p>\n

However, he added: \u201cWe see a 6-2-1 vote tally to keep Bank Rate unchanged. Who\u2019s voting for a rate cut? We think Dave Ramsden and Swati Dhingra will opt for a quarter-point rate cut. And we see Alan Taylor pushing for a larger half-point rate cut.\u201d<\/p>\n

In a note to clients, Goldman Sachs said they had changed their minds after the latest data amounted to a “convincing case for a cut [this] week”.<\/p>\n

Elsewhere, the European Central Bank held its benchmark <\/a>rate at 2%, while the Federal Reserve lowered its range<\/a> to 3.75\u20134%, but cautioned that another cut in December was \u201cnot a foregone conclusion\u201d.<\/p>\n

The BoE will also publish updated economic forecasts on Thursday, outlining its expectations for growth, inflation and unemployment in the months ahead.<\/p>\n

Download the Yahoo Finance app, available for <\/strong>Apple<\/strong><\/a> and <\/strong>Android<\/strong><\/a>.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"The Bank of England (BoE) faces one of its most finely balanced policy decisions in months this week,…\n","protected":false},"author":2,"featured_media":546217,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5008],"tags":[25548,3670,936,6724,748,393,4884,478,21528,175490,16,15],"class_list":{"0":"post-546216","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-england","8":"tag-andrew-bailey","9":"tag-bank","10":"tag-bank-of-england","11":"tag-boe","12":"tag-britain","13":"tag-england","14":"tag-great-britain","15":"tag-interest-rates","16":"tag-labour-market","17":"tag-quarter-point","18":"tag-uk","19":"tag-united-kingdom"},"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/115485793717348456","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/546216","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=546216"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/546216\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/546217"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=546216"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=546216"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=546216"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}