The Bank of England’s Monetary Policy Committee (MPC) has once again held the line, keeping the UK’s key interest rate at 4% following their September 18, 2025 meeting—a decision that underscores the central bank’s ongoing struggle to balance persistent inflation against a fragile economic recovery. The move, which saw a 7-2 vote in favor of maintaining the current rate, comes amid mounting pressures on households, businesses, and the broader economy, with the hospitality sector feeling the squeeze more than most.
Governor Andrew Bailey, speaking after the decision, emphasized the need for "continued vigilance," noting that inflation remains well above the Bank’s 2% target. “The Committee remains focused on squeezing out any existing or emerging persistent inflationary pressures, to return inflation sustainably to its 2% target in the medium term,” Bailey stated, according to the Bank of England’s official release.
Inflation has been a stubborn adversary for the UK. The Consumer Prices Index (CPI) held steady at 3.8% in August, while core inflation, which excludes volatile food and energy prices, was only slightly lower at 3.6%. Both figures sit uncomfortably above the Bank’s preferred level, and the MPC expects inflation to peak at around 4% in September before gradually easing into the first half of 2026. According to the Bank’s forecasts, this peak—double the inflation target—justifies the institution’s cautious approach to further monetary easing.
For the hospitality industry, the pain is acute. Food and non-alcoholic beverage prices have surged 5.1% year-on-year, driven by spikes in the cost of beef, dairy, and chocolate—staples for many pubs, restaurants, and hotels. The Bank’s regional agents have reported that consumer-facing businesses, especially those in the licensed trade, are finding it increasingly difficult to pass these costs on to patrons already grappling with broader economic pressures. The result? Shrinking profit margins and a sector that’s treading water, with many operators anxiously eyeing the upcoming Autumn Budget for signs of relief or further hardship.
Adding to the sector’s woes is the uneven pattern of consumer demand. Hotel accommodation and tourism spending remain notably weak, with the Bank’s latest intelligence suggesting that demand is largely concentrated around major events—recent high-profile concerts, for instance, have provided rare boosts for local venues. But outside these spikes, revenue streams are inconsistent, making it a challenge for businesses to manage staffing and inventory without overextending themselves.
The MPC’s vote wasn’t unanimous. Two members, Swati Dhingra and Professor Alan Taylor, favored a quarter-point rate cut to 3.75%, reflecting some appetite for further monetary easing. However, the majority’s decision to hold rates steady signals a preference for caution, particularly as underlying price pressures—especially in services—continue to worry policymakers. The Bank has now reduced rates five times since August 2024, trimming them from a peak of 5.25% to the current 4%. Yet, as Bailey and his colleagues have stressed, any further cuts will depend on solid evidence that inflation is truly on the retreat.
Beyond interest rates, the Bank of England has also announced a slowdown in its quantitative tightening program, pausing the accelerated sale of UK government bonds acquired during the pandemic. This move comes amid market volatility and government fiscal concerns, as rising borrowing costs and inflation continue to strain public finances. Investors and analysts see this as a signal that the Bank is acutely aware of the delicate balance required to maintain market stability while managing its sizable bond portfolio.
The UK economy, meanwhile, is showing only the faintest signs of growth. Data from early to mid-2025 points to stagnation or, at best, modest expansion, with July bringing no monthly growth at all. Employment growth has also softened, and wage increases are decelerating—a trend that may help ease inflation but also limits household spending power. The MPC acknowledged that employment growth is currently at zero, a situation partly attributed to increased national insurance contributions introduced by Chancellor Rachel Reeves last year. The business community has not been shy about expressing its frustration, with many blaming the higher employer contributions for the cooling jobs market.
Fiscal policy looms large over the Bank’s deliberations. Chancellor Reeves is set to deliver the government’s Autumn Budget on November 26, 2025, with expectations of tax hikes and spending adjustments aimed at shrinking a budget deficit running into the tens of billions. As reported by multiple outlets, including Cryptopolitan, Reeves’s initiative is designed to balance the books and reduce government borrowing—a move that could further dampen business confidence and investment, especially in sectors already under pressure.
Financial markets have responded to the Bank’s cautious stance with relative calm. The British pound remained flat at $1.3638 following the announcement, and sterling has stayed stable overall, supported by the central bank’s tone and inflation data. However, analysts warn that the economic backdrop remains complicated. Goldman Sachs and Deutsche Bank both anticipate that fiscal tightening, persistent inflation, and weak momentum could keep gilt markets volatile and the MPC wary of rapid rate cuts. Most market watchers now expect the next rate cut to come no earlier than April 2026, with the Bank’s terminal rate possibly settling around 3%—slightly below earlier expectations.
The Bank’s path forward is fraught with uncertainty. On one hand, aggressive rate hikes since 2022—prompted by energy price shocks and post-pandemic disruptions that pushed inflation above 7%—have cooled demand and tamed some price growth. On the other, high borrowing costs have increased mortgage burdens and strained households. As Isaac Stell, investment manager at Wealth Club, put it: the central bank faces a dilemma of “either easing rates and risking further fueling inflation or raising rates, which can strain an already weak economy.” Stell added, “the real action lies with Reeves and not with the central bank,” suggesting that fiscal decisions in the upcoming budget may prove more pivotal than monetary policy tweaks.
For now, the Bank of England is choosing patience and prudence. Its leadership continues to stress the importance of a “gradual and careful” approach to future easing, wary of repeating past mistakes by loosening policy too soon. With inflation still a thorn in the side of policymakers, and growth prospects far from robust, all eyes are on the November budget and the next MPC meeting. The hope, at least in Threadneedle Street, is that the coming months will bring clarity—and, perhaps, a little relief for businesses and households alike.
