The Union flag flies on a pole atop the Bank of England on August 7, 2025 in the City of London.
Niklas Hallen | AFP | Getty Images
LONDON – The Bank of England is set to make its final interest rate decision on Thursday before its autumn budget later this month, and economists say while the central bank is likely to leave rates unchanged, it is not a given.
Dean Turner, head of eurozone and UK economist at UBS Global Wealth Management’s Chief Investment Office, said on Tuesday: “You never know what direction any meeting will go, but this one…is one of the most difficult meetings to convene for some time.”
“It’s not a question of whether we’re going to cut rates at some point. The answer is yes. We believe they will… If policy tightens, inflation falls and growth is lackluster, rates will fall. The difficult part is predicting when they will cut rates,” he added.
Economists largely expect a majority of the BoE’s nine-member Monetary Policy Committee (MPC) to vote to keep the key interest rate, known as the Bank Rate, at 4% at its November meeting.
But there are opponents, including Barclays, Nomura, Mizuho and UniCredit, who believe there could be a surprise cut to 3.75% today. Julien Lafargue, chief market strategist at Barclays Private Bank, acknowledged on Tuesday that although there was a chance of a rate cut this month, it was a “very balanced decision”.
In any case, the general consensus is that rate setters could cut rates as early as December, and again into next year in response to expected cooling in inflation (inflation was 3.8% in September, unchanged for the third straight month) and softer labor market data.
Most MPC members are more concerned about the impact of cutting rates too soon rather than too late, and the BOE will want to see data and evidence of continued downward expectations for wage growth to slow to a pace consistent with its target before voting to cut rates again, Oxford Economics said in its analysis.
“If we are right and the BoE pauses (this week), the question will be when the next rate cut will occur,” Alan Monks, chief UK economist at JPMorgan, said in a note.
“We have argued that further downside surprises in inflation and labor market data will dictate that. For example, the rise in the unemployment rate to 4.9% in September could be significant, as well as further modest sequential increases in core CPI services and private pay.”
UBS’s Turner said if the BoE leaves rates unchanged on Thursday, he expects the central bank to “signal a rate cut by February at the latest, and probably as early as December.”
“Policymakers won’t have new forecasts in December, but they will have budgets and impact analysis in their pockets,” he said.
autumn budget
The fact that this month’s central bank meeting will be held ahead of the fall budget proposal on November 26th is another reason for BOE policymakers to pause and think.
Rachel Reeves, the Chancellor of the Exchequer, is widely expected to announce tax increases to fill a fiscal black hole estimated at between 20 billion and 50 billion pounds ($20 billion to $65.2 billion), based on assumptions such as lower productivity, debt repayments and the cost of a U-turn in welfare spending cuts, among other things.
Earlier this week, Reeves clearly signaled that tax increases were coming and that he would consider raising income taxes as one way to raise revenue, but he did not provide further details. Tax increases are likely to reduce consumer demand and serve to further suppress inflation.
“The inclusion of an income tax hike (in the budget) would further weigh on real household incomes from high inflation and slowing wage growth,” Berenberg economist Andrew Wishart said in a note Friday. “Inflation is likely to moderate as these factors weigh on demand.”
“That would allow the Bank of England to cut interest rates by 25 basis points to 3.50% at least twice next year. Bringing forward fiscal tightening would open the door to a third rate cut to 3.25% in 2026,” he added.
