Bank of England rate decision in November 2025

LONDON – The Bank of England voted narrowly on Thursday to keep interest rates steady, acting cautiously ahead of the government’s autumn budget in November.

Of the BOE’s nine-member monetary policy committee, five voted to keep the key interest rate, known as the bank rate, at 4%, while four opted for a 25 basis point cut.

The vote was smaller than expected and economists polled by Reuters expected a 6-3 split in favor of upholding the decision.

BOE Governor Andrew Bailey told CNBC that rate cuts are coming, and economists are now pricing in a rate cut before Christmas.

“We are past peak tightening, which is what you would expect given we have cut interest rates five times. [since Aug.2024]. For my part, I think the policy is still restrictive, but it has already passed the peak of restriction,” he told CNBC’s Ritika Gupta.

As for the timing of the next cut, Bailey said he would keep an eye on inflation and labor market data due before the last policy meeting of the year on Dec. 18.

“I will certainly be looking at the rest of this year and the evidence we see between now and our last meeting,” Bailey said, adding that the MPC could also incorporate Chancellor Rachel Reeves’ budget, due on November 26, into the central bank’s assessment.

The central bank said in a statement that the inflation rate, at 3.8% in September, had probably peaked and that a disinflationary trend was underway. This was “supported by the still restrictive stance of monetary policy”, he said.

“This is reflected in a decline in wage growth and service price inflation. Underlying disinflation is being underpinned by moderate economic growth and increasing slack in the labor market,” the bank added.

The BOE warned that future rate cuts “will therefore depend on the evolution of the inflation outlook. If progress on disinflation continues, bank rates are likely to continue on a gradual downward trajectory.”

“I think it’s the pigeons that win the argument,” Victoria Clarke, chief economist at Santander CIB in the United Kingdom, told CNBC on Thursday.

“[BOE Governor Andrew] Bailey has made it clear that he wants a little more data and that was certainly my opinion, that there is a lot of value in waiting until December. You have two more CPIs [inflation] next impressions and two more about the job market and, of course, this huge budget,” he told CNBC Decision Time.

UK government bond yields fell across the board, with the benchmark 10-year yield losing almost 3 basis points. Meanwhile, the British pound pared its earlier gains to trade 0.18% higher against the US dollar.

Thursday’s meeting was the last before the fall budget later this month. Economists had said that while they believed the central bank was more likely to keep rates stable, it was not a given.

“It’s not a question of whether they will cut interest rates at some point; the answer is yes, we think they will,” Dean Turner, head of the euro zone and a British economist at UBS Global Wealth Management’s chief investment office, said on Tuesday. “If policy is tight, inflation is falling and growth is lackluster, then interest rates are going to go down. The hard part is anticipating when,” he added.

There is a general consensus that rate setters could cut rates as early as December, and will do so again over the next year in response to the expected cooling of inflation – the rate of which remained unchanged for the third consecutive month in September, at 3.8% – and a weakening of labor market data.

Most MPC members are more concerned about the implications of cutting rates too quickly than too slowly, Oxford Economics noted in its analysis, and the BOE will want to see evidence of sustained negative surprises in the data and wage growth slowing at a pace consistent with the target before voting for a further cut.

“If we are right and the BOE pauses [this] week, the question will be when the next cut will come,” Allan Monks, JP Morgan’s chief UK economist, said in a note.

“We have argued that further downward surprises in inflation and labor market data will determine that. For example, an increase in the unemployment rate to 4.9% in September could be significant, as could further soft sequential gains in CPI core services and private wages.”

The fact that this month’s central bank meeting came before the next fall budget on Nov. 26 was another reason for BOE policymakers to pause for thought.

Chancellor Rachel Reeves is widely expected to announce tax rises as she seeks to fill an estimated £20-50 billion ($20-$65.2 billion) fiscal black hole, based on assumed forecasts of lower productivity, debt servicing and the cost of U-turns in social spending cuts, among other things.

Earlier this week, Reeves gave a clearer indication that tax increases are coming and is expected to consider raising the income tax as a way to raise revenue, but has not provided further details. Tax increases would likely act as another brake on inflation by reducing consumer demand.

“If the measures [in the budget] If they included an income tax increase, they would increase the drag on real household incomes due to high inflation and slowing wage growth. As these factors weigh on demand, inflation will likely decline,” Andrew Wishart, an economist at Berenberg, said in a note on Friday.

“If so, this will allow the Bank of England to cut interest rates by 25 basis points at least twice next year to 3.50%. An early fiscal adjustment would open the door to a third cut in 2026, to 3.25%,” he added.