The Bank of England kept interest rates at four percent

Thursday 06 November 2025 12:24 WIB
| Updated:

Thursday 06 November 2025 12:46 WIB

Share

• 
  Share on Facebook
• 
  Share on Twitter
• 
  Share on LinkedIn
• 
  Share on WhatsApp
• 
  Share on Email

The Bank of England has kept interest rates at four per cent amid caution over high levels of inflation ahead of Chancellor Rachel Reeves’ crucial Budget in the next three weeks.

The World Bank’s Monetary Policy Committee (MPC) voted 5-4 to keep interest rates on hold as Governor Andrew Bailey, who made the decision at the last meeting, said he would “prefer to wait” before supporting further cuts.

Policymakers at the World Bank said the crisis decision weighed on a contraction in the job market, which could lower inflation rates, and high inflation expectations of around 4 percent among households in recent months, which would have an adverse impact.

Inflation will only reach the World Bank’s inflation target of two percent in the second quarter of 2027, and gradually fall from the current level of 3.8 percent. The World Bank made the same assumption in a report last August.

The British economy is expected to grow by 1.4 percent this year and in 2026. The UK slightly revised its forecast for this year but lowered it for next year.

GDP growth is expected to jump to 1.7 percent in 2027 and 1.8 percent in 2028.

Bank policymakers are at odds over interest rates

The World Bank left its policy guidance “cautious” and said that interest rates were on a “gradual downward path”, with minutes of the meeting highlighting that the CPI inflation rate had “peaked” at 3.8 per cent.

In explaining his policy decision, Bailey opened the door to a vote to loosen the policy in the coming months.

“The upside risk to inflation has been less pressing since August, and I see policy easing further if disinflation becomes more pronounced in the coming period,” Bailey said.

“Instead of cutting Bank Rate now, I would prefer to wait and see whether the resilience of disinflation can be confirmed in future economic developments this year.”

Responding to the World Bank’s latest decision, Reeves said: “Under this government, we have seen five interest rate cuts that have helped lower costs for families and businesses and today’s forecast suggests that inflation will fall faster than previously thought.

“In the budget later this month I will take the fair choices necessary to build a strong foundation for our economy so we can continue to reduce waiting lists, cut the national debt and cut the cost of living.”

Some World Bank officials are concerned about rising wage growth, with salaries excluding bonuses increasing by 4.9 percent in the three months to August.

However, others are more concerned about a further fall in employment and further damage to the UK labor market.

The World Bank’s central projections slightly revised up the peak unemployment rate to 5.1 percent in the second quarter of next year.

Rising savings rates among the UK public, keeping consumption growth “relatively weak”, could also dampen demand for goods as concerns arise that lower interest rates provide no incentive for people to spend more.

Dove votes for rate cut	Explanation
Sarah Breeden	While the positive risks to inflation have eased somewhat since the August Report, the negative risks to the demand outlook have become greater. Coupled with my view that policy remains restrictive and allowances continue to increase, this gives me enough confidence to make cuts now.
Swati Dhingra	Labor market sluggishness should be anchored by the potential risk of rising inflation expectations. Job vacancies are decreasing, while vacancies may be greater than expected. Weak demand will continue to limit companies’ ability to raise prices.
Dave Ramsden	Activity has weakened, the labor market has weakened significantly, and inflationary pressures have run as expected. I consider that our policy stance is still restrictive and, based on my view, I hope that the gradual removal of policy restrictions will remain appropriate.
Alan Taylor	I don’t agree with the main projections and my own view is weaker. I rate the current level of leniency as greater, which implies that the current attitude is more restrictive than expected. Peak unemployment is still to come, perhaps it will persist for some time, our projections for it have jumped higher than previously expected. I emphasize our other models showing that inflation will probably not stop falling in the second half of next year and may be below its limits.

Hakws voted for interest rates to be maintained	Explanation
Andrew Bailey	I prefer to wait and see whether the durability of disinflation can be confirmed in future economic developments this year.
Megan Greene	I don’t believe the stance of monetary policy is restrictive. There is great uncertainty surrounding the neutral level. As we approach this, the risk of cuts going too far or too fast increases and it becomes more difficult to discern whether inflation is driven by the stance of monetary policy.
Clare Lombardelli	Higher inflation expectations… may have changed wage and pricing behavior. In a scenario like this, we need restrictive monetary policy over a longer period of time to return inflation to target in a sustainable manner.
Catherine Mann	Monetary policy needs to control the rate of inflation and expectations to strengthen commitment to our two percent target. Because a high savings ratio reflects the erosion of real wealth by inflation, and provides a buffer against uncertainty in purchasing power, a firm stance on inflation is needed.
Pill Huw	I still favor a slower pace in lifting monetary policy restrictions than has been done in the last 18 months, reflecting my long-standing concern that structural changes in pricing and wage behavior have resulted in the persistence of stronger intrinsic inflation in the UK.

Bank officials were unfazed by Reeves

The World Bank’s latest decision on interest rates shows that policymakers are undeterred by public statements made by Reeves that he will use the upcoming Budget to curb the cost of living.

The Chancellor said he would seek to lower borrowing costs as he gave a strong signal that he would break Labour’s manifesto commitment not to raise income tax in light of comments that “everyone” should contribute more.

The increase in income tax may be disinflationary considering that the purchasing power of British people will be affected. City analysts and business leaders say raising income tax would be the most effective method to fill a fiscal hole estimated at £30 billion and build more space.

Accelerating the drive towards lower inflation rates in the UK could prompt the World Bank to cut interest rates more quickly next year.

World Bank officials refused to preempt the Budget policy given last year’s £25 billion employer national insurance contribution (NIC) fund forced companies to raise prices.

The World Bank’s latest report says the NIC rise has had a “disproportionate” impact on supermarkets, pushing up food prices. Food price inflation could reach 5.3 percent by the end of this year, according to World Bank estimates.

Officials said the NIC hike has already impacted consumers, and changes in the coming months are unlikely to have much of an impact.

The report also noted that tariffs imposed by President Trump had little impact on lower prices in the UK due to trade diversion from China and other countries.

International trade disruptions did not play a major role in influencing MPC members’ votes.

However, policymakers say rumors of taxation ahead of the APBN have had an adverse impact on growth. The cyber attack on Jaguar Land Rover also hampered the UK economy in the third quarter of this year.