"The Bank of England opted to keep interest rates unchanged, maintaining its pattern of holding rates steady at alternate meetings. The MPC have on balance become slightly more hawkish since August, with recent data being a key driver behind this shift.
The labour market has continued to cool, but evidence of deterioration has become less apparent, weakening the case for further policy easing. Meanwhile, inflation is set to rise further in the near term, driven by more salient categories such as food, which could impact pricing decisions amongst businesses and household expectations.
The less favourable backdrop has seen the odds shift against further interest rate cuts this year. But with inflation expected to return to target in mid-2026 and forward-looking surveys suggesting pay growth is set to return close to target over the coming year, we expect a small majority on the MPC to vote for a cut in November, leaving interest rates at 3.75% by the end of 2025.
Today’s meeting also saw the MPC decide to slow the pace of government bond sales, Quantitative Tightening (QT), over the next 12 months, to £70 billion, down from £100 billion. The Bank of England is the only major central bank that has chosen to actively unwind its balance sheet, with its counterparts opting for a more passive approach. The decision to slow the pace of its active sales should help ease some of the pressure on the UK bond market in the run up to the Budget.”
