Bank of England Walks a Cautious Path

The Monetary Policy Committee voted by a majority of 5–4 to maintain Bank Rate at 4%. Four members voted to reduce Bank Rate by 0.25 percentage points, to 3.75%.

CPI inflation is judged to have peaked. Progress on underlying disinflation continues, supported by the still restrictive stance of monetary policy. This is reflected in an easing of pay growth and services price inflation. Underlying disinflation is being underpinned by subdued economic growth and building slack in the labour market.

Monetary policy is being set to balance the risks around meeting the 2% inflation target sustainably. The risk from greater inflation persistence has become less pronounced recently, and the risk to medium-term inflation from weaker demand more apparent, such that overall the risks are now more balanced. But more evidence is needed on both.

The restrictiveness of monetary policy has fallen as Bank Rate has been reduced. The extent of further reductions will therefore depend on the evolution of the outlook for inflation. If progress on disinflation continues, Bank Rate is likely to continue on a gradual downward path.

Andrew Bailey, Governer of the Bank of England Said

Upside risks to inflation have become less pressing since August, and I see further policy easing to come if disinflation becomes more clearly established in the period ahead. Recent evidence points to building slack in the economy, and the latest CPI data were promising. But this is just one month of data. Labour costs remain elevated and wage growth, while on a downward path of late, may plateau. In assessing the outlook, I find the mechanisms underlying upside risks less convincing than those underlying the downside. Previous negative labour supply shocks could be less important for the trajectory of inflation today (Box F). Firms’ margin rebuilding may be mitigated by weak demand (Box A), and elevated household inflation expectations may have more limited impact (Box B). The downside scenario seems more likely. It could help explain the elevated saving rate, and Agents’ intelligence on uncertainty. Rather than cutting Bank Rate now, I would prefer to wait and see if the durability in disinflation is confirmed in upcoming economic developments this year. Current market pricing is close to the path suggested by a forward-looking Taylor rule (Annex 1), which is a fair description of my position at present.

But he says risks remain, and the Bank needs to see more evidence inflation is falling before further cuts follow.  Inflation peaked at more than 11% in 2022. It briefly returned to the 2% target last year before rising for much of 2025, partly driven by food and energy costs.

INDUSTRY COMMENTS:

Nathan Emerson, CEO of Propertymark, comments:

Daniel Austin, CEO and co-founder at ASK Partners, said:

“With global volatility high and domestic policy in flux, it’s little surprise the MPC has held rates at 4%. With the Autumn Statement approaching and fiscal plans still unclear, policymakers are waiting for greater certainty. For homeowners and buyers, hopes of cheaper borrowing persist, but high fixed-rate mortgages mean meaningful relief remains distant. Inflation is unlikely to hit target this year, keeping mortgage pressures elevated and household confidence weak.

 “In property, the decision reinforces a cautious “wait and see” mood. Buyers are pausing and developers holding back amid uncertainty over taxes, build costs, and the broader economy. The proposed cut in affordable housing requirements to 20%, alongside a fast-tracked planning route, could improve scheme viability in London, but high financing costs and thin margins may limit the benefit. Easing planning rules and offering temporary levy relief could help restart stalled sites, though demand-side stimulus will also be needed, through first-time buyer support, stamp duty reform, and incentives for domestic off-plan purchases.

 “Resilient segments such as co-living, build-to-rent, and storage continue to attract capital amid tight supply and steady demand. Yet a clear, sustained fall in inflation remains key to unlocking broader investment. If rate cuts arrive at some point in the near future, they could reignite momentum, but until then, only the most agile investors are likely to find opportunity in a cooling market.”