In a move watched closely by markets, businesses, and households alike, the Bank of England (BoE) on November 6, 2025, opted to hold the United Kingdom’s main interest rate at 4%. The decision, announced just weeks before Chancellor Rachel Reeves’s pivotal Autumn Budget, came after a narrow 5-4 vote by the Monetary Policy Committee (MPC)—a split that surprised many economists who had anticipated a more decisive majority. This was the second consecutive meeting where the committee maintained rates, signaling both caution and a sense of transition as the UK’s economic landscape shifts.
The context for the BoE’s decision is complex. Inflation, which had been a persistent concern through much of the past two years, appears to be on a downward trajectory. The Bank reported that the Consumer Price Index (CPI) inflation peaked in September 2025 at 3.8%, a figure slightly lower than earlier forecasts of 4%. The central bank now expects inflation to continue easing, falling close to 3% early next year and ultimately returning to its 2% target by 2027. This progress is attributed to a combination of factors: restrictive monetary policy, subdued economic growth, and a labor market that’s showing signs of slack.
Governor Andrew Bailey, who cast the deciding vote, struck a measured tone in his post-meeting remarks. "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, according to The Guardian. He emphasized that while recent data is promising, particularly regarding wage growth and services price inflation, more evidence is needed before any further move is made. "Labour costs remain elevated and wage growth, while on a downward path of late, may plateau. In assessing the outlook, I find the mechanisms underlying upside risks less convincing than those underlying the downside," Bailey told CNBC.
The MPC’s split vote reflected underlying uncertainty. Four members advocated for a 0.25 percentage point cut, to 3.75%, arguing that risks of persistent inflation have diminished while the threat of weaker demand has grown more apparent. The Bank’s own statement acknowledged this rebalancing of risks: "The risk from greater inflation persistence has become less pronounced recently, and the risk to medium-term inflation from weaker demand more apparent, such that overall the risks are now more balanced. But more evidence is needed on both."
Economic data supports the Bank’s cautious optimism. Inflation has steadied in recent months, thanks in part to slower increases in food prices and weaker wage growth. Yet, the Bank’s latest Monetary Policy Report also highlighted that underlying disinflation is being underpinned by subdued economic growth and building slack in the labor market. The UK unemployment rate is now projected to rise to 5.1% in the second quarter of 2026, up from a previous forecast of 5%. This uptick is notable, especially as nearly half of surveyed companies reported reducing employment more than planned due to higher National Insurance costs.
Business confidence remains fragile. Many firms have delayed investments, citing uncertainty ahead of the Autumn Budget. The Bank’s survey results showed that companies are holding off on spending, wary of what fiscal policy changes might emerge later in November. Government finances have been strained by high borrowing costs, and Chancellor Reeves faces mounting pressure to deliver a budget that balances fiscal responsibility with much-needed support for growth and public services.
Despite these headwinds, there are glimmers of hope. On the same day as the rate decision, the BoE raised its economic growth forecast for 2025 to 1.5% from 1.2%, maintained its 2026 outlook at 1.2%, and slightly increased its 2027 prediction to 1.6%. These revisions, while modest, suggest that the central bank sees potential for a gradual recovery—provided that inflation continues to cool and fiscal policy remains supportive.
Chancellor Rachel Reeves responded to the Bank’s decision with a focus on the government’s achievements and future plans. "Under this Government, we have seen five interest rate cuts that have helped bring down costs for families and businesses and today’s forecast shows that inflation is due to fall faster than previously predicted. At the Budget later this month I will take the fair choices that are necessary to build the strong foundations for our economy so we can continue to cut waiting lists, cut the national debt and cut the cost of living," Reeves said, as quoted by The Independent.
Markets reacted swiftly to the BoE’s announcement. Yields on UK government bonds (gilts) fell, indicating investor anticipation of future rate cuts—possibly as soon as December. The pound, meanwhile, traded slightly higher against the US dollar, reflecting both relief that rates were not raised and optimism about the direction of policy. According to CNBC, the interest rate swaps market began pricing in a 65% chance of a rate cut next month, up sharply from earlier in the week.
Economists are now focused on the timing and pace of any future rate reductions. Victoria Clarke, UK chief economist at Santander CIB, told CNBC, "Bailey has made it clear he wants a bit more data and that was certainly my judgement, that there is a lot of value in waiting for December. You’ve got two more CPI [inflation] prints coming and two more labor market prints and, of course, this massive budget." Others, like Paul Dales of Capital Economics, believe the current pause is simply that—a pause, not the end of the downward trend in rates. "With a tightening in fiscal policy in the Budget on 26th November on the cards, the Bank will probably resume cutting rates in the coming months. We still think rates will be cut to 3.00% next year rather than to the 3.50% priced into the financial markets," Dales said.
The upcoming Autumn Budget looms large over the central bank’s deliberations. Economists widely expect Chancellor Reeves to announce tax rises, perhaps including an increase in income tax, as she seeks to fill a fiscal gap estimated between £20 billion and £50 billion. Such measures would likely dampen consumer demand, potentially accelerating the decline in inflation and giving the BoE more room to ease monetary policy. Andrew Wishart, economist at Berenberg, noted, "If the measures [in the budget] include a hike in income tax, they would add to the drag on households’ real incomes from high inflation and slowing pay growth. As these factors weigh on demand, inflation will likely ease. If so, this will allow the Bank of England to cut interest rates by 25 basis points at least twice next year to 3.50%. A front-loaded fiscal tightening would open the door to a third cut in 2026, to 3.25%."
Still, the Bank remains cautious. As Janet Mui of RBC Brewin Dolphin observed, "With widespread expectation of potential tax hikes in the Autumn Budget, there is a plausible case for even weaker demand hence pushing inflation lower from 2026. The difficulty is that the BoE cannot consider hypothetical impact in its assessment prior to knowing the exact measures in the Budget. We will, therefore, only get more clarity post Budget and Governor Bailey’s vote will be crucial."
As the UK heads toward the end of 2025, the BoE’s latest decision underscores both the progress made on inflation and the uncertainty that lies ahead. With inflation easing but economic growth still tepid and the labor market weakening, policymakers are walking a tightrope. The coming weeks—especially the unveiling of the Autumn Budget and fresh economic data—will be critical in shaping the next chapter of UK monetary policy.