The Bank of England is widely expected to hold interest rates at 4% when its Monetary Policy Committee meets on Thursday, though economists say the decision is finely balanced. Recent economic data has sparked debate about whether a cut to 3.75% could be justified, despite inflation remaining nearly double the central bank's 2% target.
September's inflation figure stayed at 3.8%, defying most forecasts that predicted it would rise to 4%. Food prices eased during the month, offering what Matt Swannell, chief economic adviser to the EY Item Club, called «encouraging signs». However, he cautioned that policymakers «remain concerned about sticky inflation becoming embedded».
Edward Allenby, senior UK economist for Oxford Economics, said the committee «will want to see more sustained evidence that underlying inflationary pressures are softening before cutting again». He added: «On balance, data published since the September meeting should help to slightly ease some of the MPC's worries about above-target inflation persisting. But it's unlikely to be enough to convince a majority to back a November rate cut.»
Budget uncertainty
The timing adds complexity, with Chancellor Rachel Reeves set to present her autumn Budget on November 26. Ellie Henderson, an economist for Investec, suggested fiscal tightening from the Chancellor could increase pressure for a rate cut by year-end: «It is looking ever more likely that Chancellor Reeves will have to increase taxes and/or cut spending to meet her fiscal rules and restore a degree of fiscal headroom. Such a tightening in fiscal policy would act as a weight on demand within the economy, and thereby increase disinflationary pressures, making a rate cut by the end of the year more likely.»
Some major banks, including Barclays and Goldman Sachs, now predict a rate cut despite earlier consensus suggesting borrowing costs might not fall until 2026. The shift in sentiment could affect mortgage holders who face refinancing at higher rates.
Note: This article was created with Artificial Intelligence (AI).
