Bank of England holds interest rate at 4%

The Bank of England has held its benchmark interest rate at 4%, maintaining borrowing costs for a third consecutive month in a widely expected move as policymakers balance the risk of persistent inflation against signs of slowing economic growth.

At its meeting ending 5th November, the Monetary Policy Committee (MPC) voted narrowly – 5–4 – to keep the Bank Rate unchanged, with four members preferring a 0.25 percentage point cut to 3.75%.

Governor Andrew Bailey said the decision reflects the committee’s effort to “balance the risk that above-target inflation becomes more persistent against the risk that demand in the economy is weakening, which might cause inflation to fall too low.”

Inflation stood at 3.8% in September, nearly double the Bank’s 2% target, though it has fallen sharply from its double-digit peak three years ago. Bailey noted that inflation has “come down a long way” but remains too high for comfort.

The Bank’s latest Monetary Policy Summary said progress on “underlying disinflation” continues, supported by restrictive monetary policy. Wage growth and services inflation are easing, while economic growth remains subdued and labour market slack is increasing.

“The risk from greater inflation persistence has become less pronounced recently, and the risk to medium-term inflation from weaker demand more apparent,” the MPC said, adding that the overall balance of risks is now “more even.”

Since August 2024, the Bank has reduced rates five times, reflecting confidence that inflation is moving toward target. Bailey indicated that further gradual cuts could follow if inflation continues to cool as expected.

“If inflation stays on track, we expect to be able to gradually cut rates further,” Bailey said.

The decision comes ahead of Chancellor Rachel Reeves’ first Budget later this month, which could shape the economic outlook for 2026.

While financial markets largely anticipated the Bank’s decision, some business leaders expressed disappointment that policymakers did not move faster toward easing.

Neil Rudge, Chief Banking Officer for Commercial at Shawbrook, said small and medium-sized enterprises (SMEs) are feeling the strain of prolonged high borrowing costs.

“Holding rates steady for a third straight month will disappoint UK SMEs, many of whom had expected a shift towards easing after inflation fell faster than forecast,” Rudge said.
“Confidence remains fragile and investment cautious — but there is funding available for businesses that want to keep growing.”

Mike Randall, Chief Executive Officer of Simply Asset Finance, echoed those concerns, saying many firms had hoped for a cut this month after a challenging year.

“Businesses would have liked to see a rate cut this month given the year they’ve experienced. And while this was always going to be a tight decision, expectations remain strong for a reduction next month.

“Stability offers some reassurance, but SMEs need to see the cost burden fall further and conditions to genuinely improve. Right now, optimism is fragile, and with just weeks until the Chancellor delivers her Budget, the opportunity to strengthen that confidence or weaken it lies in the balance.

“The right measures could unlock growth and reinforce ambition across the UK; the wrong ones risk stalling momentum at a critical moment. Business leaders now need action, not just reassurance, to ensure this optimism turns into real progress.”