(Commonwealth_Europe) The Bank of England opted to hold interest rates steady on Thursday, a move that revealed just how divided its policymakers are as they navigate a slowing economy and falling inflation. The central bank’s nine-member monetary policy committee voted by a razor-thin margin, with five in favour of keeping the bank rate at 4% and four pushing for a quarter-point cut. The close split surprised many economists, who had expected a clearer 6–3 decision to maintain rates.
In its statement, the BOE suggested that inflation pressures were finally easing after a difficult stretch. September’s inflation rate of 3.8% appeared to mark the peak, with signs that price growth was steadily cooling. The bank credited this progress to its tight monetary stance, which has been squeezing demand for more than a year. Wage growth and service-sector prices—two areas that had kept inflation stubbornly high—are now showing signs of moderation. At the same time, slower economic growth and a softer labour market are helping reinforce the disinflationary trend.
Still, the BOE struck a cautious tone, warning that any future rate cuts would depend on how inflation evolves in the coming months. “If progress on disinflation continues,” the statement read, “Bank Rate is likely to continue on a gradual downward path.” In other words, policymakers are open to easing but not yet ready to rush into it.
For some analysts, Thursday’s decision marked a win for the more dovish voices within the central bank—those who believe the economy now needs relief after months of tightening. “I think this is the doves winning the argument,” said Victoria Clarke, U.K. chief economist at Santander CIB. She noted that Governor Andrew Bailey has repeatedly emphasised the need for more data before making a major move. “There’s a lot of value in waiting for December,” Clarke told CNBC, pointing out that two more inflation reports and two labour market updates are due before the next meeting, along with the government’s highly anticipated Autumn Budget.
Markets reacted cautiously to the news. Yields on government bonds slipped, with the 10-year gilt falling nearly 3 basis points, reflecting growing expectations that rate cuts may not be far off. The pound, meanwhile, gave up some earlier strength but still managed to edge slightly higher against the U.S. dollar.
Thursday’s meeting was particularly significant because it came just weeks before the government’s budget announcement, a key moment that could influence fiscal and monetary policy alike. Leading up to the vote, economists had been divided on what the BOE would do. Some, like Dean Turner of UBS Global Wealth Management, described it as one of the hardest meetings to call in recent memory. “It’s not a case of whether they will cut interest rates at some point; the answer to that is yes,” Turner said earlier this week. “The challenge is predicting when.”
While most forecasters expected the bank to hold steady, a few, including Barclays, Nomura, Mizuho, and Unicredit, thought a surprise rate cut to 3.75% was possible. Barclays’ Julien Lafargue said there was a strong case to be made for easing but admitted it was “a very finely balanced decision.”
In the end, the BOE chose patience over action. But with inflation cooling and the economy losing momentum, the balance of risks appears to be shifting. If the next round of data confirms that prices are indeed under control, the long-awaited turning point, the start of rate cuts, could arrive sooner rather than later.
