BOE Holds Rates as Inflation Risks Keep Cuts on Ice

The Bank of England (BOE) has held its benchmark rate at 4%, with a 7-2 majority on the Monetary Policy Committee opting to pause while two members voted for a 25-basis-point cut. 

The decision followed a quarter-point trim in August and came as inflation held steady at 3.8% in August, nearly double the 2% target. Markets largely expected the hold, with sterling flat near $1.3638 against the dollar.

The BOE acknowledged underlying disinflation but flagged persistent risks from elevated wage growth and services inflation. Pay growth, though easing, remains high, and the Bank projects inflation could peak at 4% in September before moderating into 2026. With U.K. GDP showing zero growth in July and the labor market cooling, the balance between curbing inflation and supporting the economy remains delicate.

Alongside the rate decision, the BOE slowed its pace of quantitative tightening, planning £70 billion in gilt sales over the next year versus £100 billion previously. Roughly £21 billion will be sold outright, with the rest redeemed. Losses from the program are expected to reach £104.2 billion, covered by the Treasury, sparking political scrutiny.

What Does This Mean for Me?

Attention now shifts to November, when the MPC meets days before the government’s Autumn Budget on Nov. 26. Markets are weighing whether further cuts will follow, but analysts caution that premature easing risks reigniting inflation while sustained high rates could deepen the slowdown. For now, policymakers are treading carefully, leaving the next move contingent on upcoming inflation and wage data.