The Bank of England has left interest rates unchanged at 4% in a setback for borrowers and the Chancellor.
The Bank’s Monetary Policy Committee (MPC) voted by 5 to 4 in a knife-edge “dovish hold” decision to keep the cost of borrowing on hold for at least one more month.
Four members - Sarah Breeden, Swati Dhingra, Dave Ramsden and Alan Taylor - wanted to reduce the rate by 0.25% to 3.75% but they were outvoted by the rest of the MPC.
However, significantly, the minutes of the MPC meeting reveal that the Banks’ Governor Andrew Bailey “judged that the overall risks to medium-term inflation had moved down to become more balanced recently,” although he ultimately opted to vote for a hold.
The decision will come as a disappointment for Rachel Reeves who had hoped for one more cut before she reveals what looks certain to be tax increasing Budget on November 26.
However, it looks increasingly likely that the MPC is just biding its time until after it has seen the detail of the Budget as it said in its report “inflation is judged to have peaked .”
Most forecasts expect that the MPC will push through a quarter point reduction when it next meets a week before Christmas.
Economists at two major City banks, Goldman Sachs and Barclays, had already broken with the City consensus to predict an interest rate cut this month to give a kick start to the flagging economy.
Growth has been feeble over the summer with GDP rising just 0.1% in August following a 0.1% fall in July.
Interest rates have been on a slow but steady downward path since August 2024, when the MPC voted to cut its rate for the first time since March 2020.
Since then, it has been cut five times, falling from 5.25% in August 2024 to the current 4%.
Rachel Reeves said: “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."
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “ “We are encouraged by four members voting for a reduction in base rate to 3.75 per cent and hope more of the Committee come round to their way of thinking in due course, perhaps even as soon as next month.
“A rate cut today would have been a welcome shot in the arm for the housing market amid much speculation as to what property taxes – and more – will be included in the Budget in three weeks. Despite five rate reductions since August last year, affordability concerns persist with borrowers having to get used to higher mortgage rates. Further rate reductions are necessary to boost not only the housing market but the wider economy."
Matthew Allen, lecturer in economics at the University of Salford, said: “The 4% rate freeze is a pragmatic move, but it doesn’t resolve the underlying tension, inflation is too high, growth too weak, and both households and businesses remain caught in the crosswinds of policy, global headwinds and cost pressures.
“Until either inflation drops meaningfully closer to target, or fiscal and trade headwinds ease, the pressure remains.”
Thomas Pugh, chief economist at leading audit, tax and consulting firm RSM UK said: “Our hunch is that the next rate cut still won’t come until February, as the committee will want to let inflation come down a little further.
“But the door to a December rate cut is now potentially wide open, especially if the Budget focuses on deflationary tax rises like income tax increases, and shies away from things that would boost inflation such as employers NICs, VAT, and duties.”
Neil Rudge, chief banking officer, commercial, at lender Shawbrook said: “Holding rates steady for a third straight month will disappoint UK SMEs, many of whom had expected a shift towards easing after inflation fell faster than forecast. With borrowing costs still at their highest level in over a decade, confidence remains fragile and investment cautious.”
Suren Thiru, economics director at accounting body ICAEW, said: “Keeping interest rates unchanged will feel like a particularly tough break for those consumers battling against high mortgage costs and firms fearing more tax hikes in the Budget.
“This latest decision confirms that the pace of policy loosening remains painstakingly slow with rate-setters likely wanting to see more evidence of weakening inflation and the outcome of the Budget before sanctioning another rate cut.
“The razor-thin vote in favour of this outcome suggests that worries among rate-setters over an ailing economy remain substantial, keeping the door open for a December interest rate cut, despite concerns over elevated inflation.
“The Budget is a notable obstacle to a December rate cut as while higher taxes can be deflationary, the upward pressure from any rise in business costs may mean that inflation is more stubborn than the Bank of England is forecasting.”
