Key Takeaways
- Bank of England’s Monetary Policy Committee is deeply divided on inflation threat
- Most economists expect rates to hold at 4%, but Barclays and Goldman Sachs predict cut to 3.75%
- September CPI inflation remained at 3.8%, below expectations
- December rate cut becoming more likely depending on Budget outcomes
The Bank of England faces a critical decision this Thursday as policymakers remain deeply divided over interest rates amid conflicting inflation signals. While most economists expect the benchmark rate to stay at 4%, major banks including Barclays and Goldman Sachs are predicting a cut to 3.75%.
Divided Committee, Critical Decision
The nine-member Monetary Policy Committee shows significant divisions ahead of Thursday’s vote. James Smith, UK developed market economist for ING, noted: “Inflation has almost certainly peaked.”
He highlighted that food inflation – a major concern this summer – fell in September and now runs half a percentage point below official forecasts. “This all comes at a time when the Bank is visibly divided on how problematic inflation really is,” Smith added.
Inflation Data Presents Mixed Picture
Official figures showed UK Consumer Prices Index (CPI) inflation remained at 3.8% in September, matching July and August levels. The reading came below the 4% many economists had expected, with food prices showing easing pressure.
Despite the divided committee, Smith believes the MPC will likely maintain caution about persistent inflation risks and keep rates unchanged this month. The Bank is also awaiting the November 26 Budget outcome before making major moves.
Case for Rate Cuts Gains Momentum
Jack Meaning, chief UK economist at Barclays, predicts recent inflation data could tip policymakers toward cutting rates on Thursday. Combined with slowing wage growth data, this would give the committee more confidence that inflation is set to ease.
Goldman Sachs economists similarly believe recent figures justify a cut to 3.75%. This marks a significant shift from earlier expectations that ruled out November cuts and suggested borrowing costs might not decrease until 2026 .
The changing sentiment comes as millions of mortgage holders face refinancing at higher rates, making the Bank’s decision crucial for household finances across the UK.
