The Bank of England (BoE) is approaching one of its most closely watched policy meetings in months, as the nation’s central bankers face renewed uncertainty over whether to pause or push ahead with further interest rate cuts. With inflation easing and the labour market showing clear signs of softening, the decision on whether to adjust borrowing costs again has become increasingly delicate.
After a string of rate reductions over the past year, the Bank is now caught between two conflicting forces — a slowing economy that may need further support, and inflation levels that remain above its 2% target. The meeting later this week is expected to highlight just how divided the Monetary Policy Committee (MPC) has become.
Financial markets currently predict that the MPC will hold interest rates steady at 4%, with traders pricing in less than a one-in-three chance of another quarter-point reduction. The cautious stance reflects concerns that inflationary pressures, although easing, still linger across sectors like services, food, and housing.
Since August 2024, the Bank has reduced rates five times, each move designed to boost economic confidence while bringing price growth under control. However, this latest round of data has made the next step less straightforward. Growth remains sluggish, wage gains have moderated, and unemployment has edged higher — all pointing to a cooling economic environment.
According to several analysts, the MPC could once again deliver a split decision. Such divisions have become a hallmark of recent meetings, reflecting the uncertainty surrounding the UK’s path toward sustainable recovery. Some members argue that rate cuts are essential to prevent stagnation, while others caution that moving too quickly could reignite inflationary risks.
James Smith, developed markets economist for the UK at ING, noted that while inflation has fallen faster than expected, the Bank is unlikely to take decisive action just yet. “The committee remains deeply divided,” he said. “Even with improved inflation and wage data, there’s no clear consensus on the next move. However, assuming the autumn budget delivers on expectations, a December rate cut now appears more likely than not.”
The Bank’s most recent quarter-point reduction in August was narrowly approved, passing with a 5–4 vote after two rounds of deliberation. This thin margin underscores how contentious rate decisions have become. Much could again hinge on whether Governor Andrew Bailey sides with those advocating for continued easing or those urging patience.
Headline inflation currently sits at 3.8%, higher than both the eurozone’s 2.1% and the United States’ 3%. Although prices are no longer rising as sharply, the rate remains well above target, keeping the pressure on the Bank to strike the right balance between fighting inflation and supporting growth.
Kathleen Brooks, research director at XTB, said the BoE’s dilemma reflects broader challenges across major central banks. “Inflation remains stubbornly high at 3.8%, which the Bank will still find uncomfortable,” she said. “However, since inflation never reached the anticipated peak of 4%, there may now be scope to revise down forecasts, which could give room for a February rate cut.”
Brooks also suggested that the tone of Thursday’s announcement could be just as important as the decision itself. Even if the Bank holds rates steady, adopting a more dovish message could signal that future cuts are likely. “Given recent weakness in the pound and sharp declines in UK gilt yields,” she added, “the downside for sterling would be limited even if the Bank hints at an earlier path to rate reductions.”
Governor Bailey has already hinted that the pace of future rate moves may slow. Speaking in September, he described the outlook as “more uncertain,” noting that while cuts have been delivered roughly every three months since last year, the path forward may not be as predictable.
Simon French, chief economist at Panmure Gordon, believes the MPC may hold fire until after Chancellor Rachel Reeves’s budget is unveiled on 26 November. “Inflation expectations among both households and businesses remain elevated,” he said. “Given that fiscal policy is still in flux, the cost of waiting another month is relatively small.”
French added that if Reeves adopts a disciplined fiscal stance, it could set the stage for a more aggressive round of rate cuts next year. “If fiscal restraint holds, the government could turn its talk on controlling inflation into action — paving the way for as much as 100 basis points of cuts in 2026 and, potentially, a cyclical economic upswing.”
Analysts at Investec have echoed that sentiment, advising the committee to wait for another set of inflation figures before making a move. They argue that acting too soon could risk undermining credibility if inflation proves more persistent than expected.
Meanwhile, Andrew Wishart, senior UK economist at Berenberg, forecasts a 6–3 vote to keep rates unchanged. “Although wage growth and CPI inflation have softened, strong nominal demand and resilient company pricing may keep inflation sticky until early 2026,” he explained. “Current rates are not yet restrictive enough to significantly cool aggregate demand.”
Market indicators suggest growing confidence that a rate cut will come by year-end. Traders now see a one-in-three chance of a move this week, rising to a two-in-three likelihood by December. Investment banks including Goldman Sachs and Nomura expect a slim majority may favour a 25-basis-point reduction to 3.75% — which would mark the sixth cut since last summer and the lowest borrowing cost in nearly three years.
A reduction of that scale would bring the UK more in line with global trends. The US Federal Reserve, for example, recently cut rates for the second time in as many months, while the European Central Bank (ECB) has opted to hold at 2% as it monitors inflation trends across the euro area.
Analysts at BNP Paribas noted that investor sentiment has shifted sharply in recent weeks. “The narrative has changed from fears of entrenched inflation to concerns that policy may now be too tight,” they wrote. “With labour market data cooling faster than expected, there’s growing pressure on the Bank to act before the economy weakens further.”
Nomura economists believe that only a narrow 5–4 majority could push through a cut this week. “We expect the Bank to lower rates by 25 basis points and remove references to policy being ‘restrictive’,” they said. “The data over the past month supports a cut, though it’s likely to be a close decision.”
Sanjay Raja, chief UK economist at Deutsche Bank, agreed that the case for a cut has strengthened but predicted the Bank would still hold steady for now. “We anticipate a 6–2–1 vote,” he said, “with Dave Ramsden and Swati Dhingra backing a small reduction, and Alan Taylor pushing for a larger half-point move.”
In a recent note to clients, Goldman Sachs said it had changed its position in light of softer inflation and weaker hiring data, arguing that the evidence now points to a “convincing case for a cut this week.”
Beyond the UK, central banks around the world are also re-evaluating their strategies. The European Central Bank has opted to maintain stability for now, while the Federal Reserve has signalled that another reduction in December is possible, though “not guaranteed.”
When the Bank of England makes its decision this Thursday, it will also release updated forecasts for inflation, GDP growth, and unemployment. These figures will shape expectations for the months ahead and influence how both markets and households perceive the path of borrowing costs.
In the end, the BoE’s challenge remains one of balance. Cutting too soon risks rekindling inflation, while waiting too long could deepen the UK’s economic slowdown. With households and businesses already under strain from high costs, the next move could prove decisive in shaping the country’s financial outlook heading into 2026.
Download NOW
4 Simple Steps To Becoming Wealthy Through Property