Bank of England holds interest rates as it warns joblessness on rise | Interest rates

The Bank of England kept interest rates steady at 4 per cent, warning that unemployment was rising and growth remained weak as it prepared for Rachel Reeves’ make-or-break budget.

With less than three weeks to go before the Chancellor’s much-anticipated tax and spending measures, the Bank’s monetary policy committee (MPC) voted by a majority of five to four to keep borrowing costs unchanged for the second consecutive meeting.

Bank governor Andrew Bailey, who cast the vote in a very balanced decision, said he wanted to “wait and see” whether inflationary pressures in the British economy would continue to ease and whether Reeves’ budget would have an impact.

“We kept interest rates at 4% today. We think interest rates are still on a gradual downward path, but we need to make sure inflation is on track to return to our 2% target before we cut it again,” he said.

Borrowing costs have been cut five-fold since Labor came to power in July 2024, easing pressure on households and businesses, with the last cut coming in August. Meanwhile, inflation remains at 3.8%; This is almost double the Bank’s 2% target.

In his 26 November financial statement, the Chancellor is expected to take action against the rising cost of living, as well as potentially slowing the economy by increasing taxes.

The hold decision matched economists’ expectations; financial markets put the probability of borrowing costs falling below 30%.

But the bank’s policymakers’ decision to hold it close and updated pessimistic forecasts are likely to lead to expectations of a rate cut in December after rate setters have had a chance to digest Reeves’ budget.

Citing growing concern about the strength of the economy, the Bank said unemployment was on track to peak at more than 5% at the beginning of next year due to weak hiring demand.

He said inflation peaked at 3.8 percent, below his previous forecast that it would likely rise to about 4 percent this fall, and is expected to fall to about 2.5 percent next year before returning to its 2 percent target through 2027.

Threadneedle Street warned that speculation over Reeves’ budget had likely contributed to the weakness in the economy in recent months, with households also keeping spending in check due to increasing pressure on living costs.

It also found exports to the US weakened and disruption to Britain’s manufacturing base linked to the Jaguar Land Rover cyber attack reduced output in the third quarter, forecasting a weaker growth rate of 0.2%.

But policymakers have signaled concern that inflationary pressures could continue to weigh on households and businesses.

While most of the MPC said there was a risk that current high inflation rates would encourage workers and firms to raise wage expectations and push up prices, the Bank said the risks were starting to turn to the downside.

Signaling that they were ready to take action in the coming months, Bailey made the following statement in the PPC minutes: “Upside risks to inflation have been less pressing since August, and I see more policy loosening if the decline in inflation becomes clearer in the coming period.”