The Bank of England has kept interest rates at four per cent warning that unemployment is rising and economic growth remains weak, as Chancellor Rachel Reeves prepares for her crucial budget.
The Bank’s monetary policy committee voted narrowly, five to four, to leave borrowing costs unchanged for a second consecutive meeting.
Governor Andrew Bailey, who held the casting vote, said he wanted to “wait and see” whether inflationary pressures in the UK continue to ease and how Reeves’s budget might affect the economy.
“We held interest rates at 4% today. We still think rates are on a gradual path downwards, but we need to be sure that inflation is on track to return to our 2% target before we cut them again,” Bailey said.
Borrowing costs have been cut five times since Labour took power in July 2024, easing pressure on households and businesses, with the last reduction in August. Inflation is currently 3.8%, nearly twice the Bank’s 2% target.
Reeves’s 26 November fiscal statement is expected to raise taxes, potentially slowing growth, alongside measures to tackle the rising cost of living.
The Bank said unemployment may exceed 5% early next year due to subdued hiring. Inflation likely peaked at 3.8% and is projected to fall to 2.5% next year before reaching 2% by 2027.
Economic weakness has also been driven by uncertainty over the budget, weaker US exports, and Jaguar Land Rover cyber-attack disruptions, with third-quarter growth forecast at 0.2%.
Bailey added in the MPC minutes: “Upside risks to inflation have become less pressing since August, and I see further policy easing to come if disinflation becomes more clearly established in the period ahead.”
