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• BBC
• Thu Nov 6 2025

Will Bank of England governor play Santa or Scrooge on interest rates?

The Bank of England governor, Andrew Bailey, expects inflation to fall to close to 3% early next year

There is a buzz outside the Bank of England.

City workers are taking advantage of the unusually mild weather to enjoy lunch outside, and there has been a shift in temperature too inside the Bank.

The decision to hold rates at 4% was made by the narrowest of margins, and the interest rate panel thinks inflation has peaked.

Governor Andrew Bailey said he wanted to see if forthcoming developments confirmed this view before cutting rates; weakness in the labour market could also play a part.

The Bank also noted last year's Budget measures ? such as an increase in employer National Insurance Contributions and minimum wages ? contributed to price pressures over the last year.

A key factor in future decisions will be the contents of the forthcoming Budget, which may ease price pressures with direct measures on bills, but also tax rises taking money out of pockets.

The chancellor has been keen to claim credit for creating the conditions for rate cuts by providing the right environment. But the Bank's report makes clear that last year's Budget measures have contributed to price pressures, and hiring hesitancy by adding to employer's costs.

Ironically it is the impact on the labour market that may have contributed to views of the rate setters already looking to cut the cost of borrowing.

While the Bank itself refused to speculate about the contents of this Budget, it noted signs that concerns elsewhere, among consumers and businesses, may be holding back the economy.

With consumer spending remaining cautious, it expects the economy to grow by 1.2% in 2026, less than the 1.5% it predicts this year - that will not be welcomed in the Treasury.