The Bank of England is expected to keep its base rate steady at 4% when it meets this Thursday, a move that will directly impact millions of homeowners. Many borrowers will still face the challenge of remortgaging at significantly higher costs than in previous years.
This expected pause comes at a time when the economic picture is becoming increasingly complex. On one side, the UK labour market is showing signs of weakness. The Office for National Statistics reported that job vacancies fell by 5.8% between May and July, leaving 718,000 positions open across most sectors. Wage growth remains at 5%, while unemployment is holding steady at 4.7%.
At the same time, inflation continues to present a problem for policymakers. The Consumer Prices Index (CPI) rose to 3.8% in July, up from 3.6% in June, well above the Bank’s 2% target. The biggest driver behind the rise was food and drink prices, showing how persistent cost pressures remain despite other areas of the economy cooling.
Andrew Bailey, the Bank’s governor, has recently warned that there is “considerably more doubt” around when interest rates might be lowered again. His comments underline the balancing act the Monetary Policy Committee (MPC) faces as it tries to keep inflation under control without putting further strain on households and businesses.
The latest GDP figures highlight this challenge. The UK economy recorded no growth in July, following a 0.4% expansion in June. While stagnation was widely expected, it piles pressure on Chancellor Rachel Reeves as she prepares for her autumn Budget in November.
Some economists argue the latest data strengthens the case for keeping rates higher for longer. Thomas Pugh of RSM predicts that the MPC will vote 7-2 in favour of holding at Thursday’s meeting, noting that slowing disinflation means the Bank will want to keep a restrictive stance well into next year.
Forecasts now suggest that interest rates could remain at 4% until at least 2026. For mortgage holders, this means more pain ahead, with millions due to refinance on much higher monthly payments compared to their previous deals.
Others share this cautious view. Edward Allenby of Oxford Economics has ruled out a September rate cut, pointing to the Bank’s hawkish signals over the summer. He added that the Bank is expected to reduce its gilt holdings by around £75 billion over the next year, as part of its wider monetary tightening strategy.
Steve Matthews of Canada Life Asset Management also sees the MPC holding steady in September. He highlighted ongoing industrial disputes, sticky inflation, and the cooling labour market as reasons for the Bank to tread carefully. He believes that the regular pattern of rate cuts or hikes may now be giving way to a longer pause.
Markets are already pricing in just one further cut before the end of the year. Analysts suggest that the outcome of the autumn Budget on 26 November could influence the Bank’s direction in the months ahead, especially if fiscal policy is tightened through tax rises.
Deutsche Bank’s Sanjay Raja has outlined three potential paths for the MPC’s forward guidance: keeping its current “gradual and careful” language, shifting to “gradual and cautious,” or dropping guidance altogether. He placed roughly equal odds on all three scenarios, signalling the uncertainty facing both policymakers and markets.
Investec’s Philip Shaw expects no cut until at least February 2026, stressing that recent data is unlikely to remove the committee’s doubts about inflation. This sentiment was echoed by other analysts who argue the Bank will remain more focused on price pressures than the cooling jobs market.
Meanwhile, Capital Economics takes a more dovish view, suggesting rates could eventually fall to 3%, though this would depend on future data and the MPC’s outlook. Chief economist Paul Dales expects the Bank to continue with its “gradual and careful” approach to rate cuts rather than any sudden shift.
For homeowners, the outlook remains difficult. With inflation still above target and little sign of meaningful relief in borrowing costs, mortgage holders face the prospect of refinancing at much higher payments for several years. This will weigh heavily on household budgets across the UK.
The MPC will announce its decision on Thursday at noon. While markets expect no change for now, the focus will be on the Bank’s tone and forward guidance, as both households and businesses look for clues on when – or if – rate cuts might return.
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