The Bank of England (BoE) kept interest rates unchanged at its policy meeting on Thursday, as markets had widely anticipated. The central bank signaled a cautious approach to monetary easing, even as inflation remains stubbornly high.
The Bank Rate was held at 4%, following a cut from 4.25% in August — the fifth reduction in the past year. Seven members of the Monetary Policy Committee (MPC) voted to keep rates steady, while two pushed for another cut to support the slowing economy. U.K. growth flatlined in July, adding to recession fears.
Fresh data released on Wednesday showed that U.K. inflation stayed at 3.8% in August, the highest in 19 months and nearly double the BoE’s 2% target. Analysts at ING noted that headline inflation is expected to remain above 3.5% through year-end, keeping pressure on the Bank’s outlook.
The BoE forecasts inflation will peak at 4% this month before gradually returning to its target by mid-2027. However, Governor Andrew Bailey recently warned there is “considerably more doubt about when and how quickly” rates can be reduced further. Most economists still expect another cut in November or December, with an additional move likely in early 2026.
Investors are also closely watching the Bank’s annual decision on bond sales, known as quantitative tightening. The MPC voted 7-2 to reduce its annual gilt sales target from £100 billion to £70 billion, in line with market expectations.
Governor Bailey said the new target allows the Bank to continue shrinking its balance sheet in line with policy goals while minimizing disruption to the gilt market.
