UK (Parliament Politics Magazine) – The Bank of England keeps interest rates at 4% as Chancellor Rachel Reeves prepares her key budget, with inflation still almost double the official 2% target.
As reported by The Guardian, the central bank’s policymakers kept interest rates unchanged at 4%, as Chancellor Rachel Reeves prepares to unveil her crucial budget later this month.
How did the Bank of England decide to hold rates at 4%?
The Bank of England’s monetary policy committee kept rates on hold for the second meeting in a row, with a 5-4 majority, ahead of the chancellor’s budget.
BoE’s Governor Andrew Bailey, using his casting vote, said he preferred to “wait and see” if inflationary pressures ease and how the chancellor’s budget would affect the economy.
He stated,
“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.”
Since Labour took office in July 2024, borrowing costs have been reduced five times, most recently in August, offering relief to consumers and firms, while inflation remains at 3.8%, close to twice the Bank’s target.
The central bank raised concerns over the economy, stating unemployment could climb above 5% in the early months of next year amid sluggish job growth.
The Bank said inflation probably hit its high of 3.8%, below prior 4% projections, and is expected to ease to 2.5% next year before returning to 2% by 2027.
The MPC warned that high inflation could push up wages and prices, but the Bank said the risks are now shifting toward the downside.
In the MPC minutes, Mr Bailey signaled the Bank’s readiness to take action in the coming months, saying,
“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.”
The MPC report adds,
“The outlook for household spending is a particular concern. The saving rate increased considerably during the pandemic and has so far not fallen back to historically more normal levels. That might indicate that there has been a more persistent shift towards higher saving, perhaps reflecting greater caution in light of the significant shocks that have hit household finances in recent years. It is also possible that households who are able to would want to continue to rebuild wealth after the recent period of high inflation.”
The Bank warned that Ms Reeves’s budget uncertainty may have slowed economic activity, with households curbing spending amid rising living costs.
What did Sir Mel Stride say about Rachel Reeves and rising inflation?
Referring to the interest rate figures, Shadow Chancellor Sir Mel Stride said,
“Interest rates are staying higher for longer because Rachel Reeves does not have a plan or a backbone.”
He stated,
“With inflation running at almost double the target rate, families are facing rising prices in the shops. The UK has the highest inflation in the G7 thanks to Rachel Reeves’ Jobs Tax and reckless borrowing spree. And yet she is once again preparing to hike taxes, leaving us trapped in a doom-loop.”
Mr Stride added,
“Ordinary people are paying the price because Labour cannot reduce spending. Only the Conservatives have the team and the plan to deliver a stronger economy.”
What did Harriet Guevara say about expected rate cuts and their impact on savers?
Harriet Guevara, Nottingham Building Society’s chief savings officer, predicts a rate cut and explained how it may affect consumers and savers alike.
She said,
“With a rate cut now widely expected, this week could mark the start of a new chapter for interest rates, and for millions of savers and borrowers.”
Ms Guevara stated,
“For savers, base rate reductions tend to feed through into lower returns over time, so this is an important moment to lock in value where you can. Fixed-rate savings products, especially Cash ISAs, remain compelling while rates are still relatively strong. With further cuts likely on the horizon, it makes sense to act sooner rather than later.”
She added,
“On the mortgage front, any reduction in the base rate could signal a gradual easing in the cost of borrowing. While we’re unlikely to see an immediate change in mortgage pricing, those coming to the end of fixed deals later this year may find better options opening up. Now is the time to review your finances and be ready to take advantage of changing conditions.”
What did Yorkshire Housing CEO Nick Atkin say about BoE rates?
Nick Atkin, head of Yorkshire Housing, urges the Bank of England to take decisive action to boost economic growth.
He said,
“This isn’t just about housing, it’s about growth, jobs, and confidence. A decisive rate cut would give the economy room to breathe and provide the stability the housing sector desperately needs.”
Mr Atkin added,
“Every month rates stay high means fewer homes and fewer people with a decent, affordable place to live.”
How did George Brown react to the Bank of England’s rate hold?
George Brown, senior economist at Schroders, said keeping rates unchanged is a wise move amid high inflation and ongoing Budget uncertainty.
He stated,
“Holding rates today was the right decision, with inflation still nearly double the 2% target. The Bank will be in a stronger position after the dust settles from the Budget, armed with additional jobs and inflation data, to judge whether further easing is warranted in December.”
Mr Brown added,
“A cautious approach remains appropriate given the risk that high inflation becomes entrenched, due to sticky wage growth and subdued productivity. However, this may change if reports the Chancellor intends to double her fiscal headroom to £20 billion, through fiscal tightening in the region of £40 billion, are true. Alongside mooted tax cuts on household energy bills, if these measures materialise, they could create scope for the Bank to cut multiple times next year.”
How did Karen Barrett react to the Bank of England holding rates at 4%?
Karen Barrett, head of Unbiased, described the BoE’s move to keep the base rate at 4% as “disappointing.”
She said,
“The BoE may be keen to see what chancellor Rachel Reeves will announce in the Budget as it’s expected to include major tax hikes and spending cuts, which could have a major impact on the UK economy.”
Ms Barret stated,
“The BoE may be keen to see what chancellor Rachel Reeves will announce in the Budget as it’s expected to include major tax hikes and spending cuts, which could have a major impact on the UK economy.”
She added,
“Any future base rate cuts could impact the rates on your savings account, mortgage or annuity, so seeking expert advice from a qualified financial adviser or mortgage broker is worth considering before acting.”
What are the government borrowing costs?
Government borrowing costs are the expenses a government incurs to raise funds, primarily through issuing bonds or taking loans. These costs consist of the interest payments made to lenders on the borrowed funds.
These costs also include fees and expenses related to the issuance and management of debt, such as underwriting fees and administrative costs, which add to the overall price of borrowing for the government.
