Business

Bank of England to hold interest rate amidst fiscal policy uncertainties and slowing growth

Sunday, 2 November 2025 5:06AM UTC

The Bank of England is expected to maintain current rates amid cautious economic outlooks, as upcoming Chancellor Rachel Reeves' fiscal plans and mixed inflation data create market and policy uncertainty ahead of the festive season.

As the Bank of England prepares to meet this week, the prospect of a pre-Christmas interest rate cut remains uncertain. Recent optimism that rates might be lowered for the sixth time in just over a year has been tempered by the impending UK Budget, expected later this month, which could reshape economic expectations. Inflation, while showing signs of easing, remains nearly double the Bank’s 2% target, and the Bank's rate-setters are reportedly hesitant to act before knowing the full extent of Chancellor Rachel Reeves' fiscal measures.

Inflation currently stands at around 3.8%, reflecting a notable decline but still a level that keeps the Bank cautious. According to economist Ellie Henderson from Investec, these inflation figures along with the unknown scale of tax hikes and potential public spending cuts in the upcoming Budget are likely to influence the Bank’s decision to hold rates steady at 4%. Traders are divided, with about a 50:50 chance of a rate cut this month. This uncertainty has contributed to sterling’s recent weakness—dropping below €1.14 against the euro and to a six-month low of $1.31 against the dollar—echoing the market volatility seen during the 2022 mini-Budget crisis under Liz Truss.

Economic indicators paint a mixed picture. Despite inflation overshooting targets, some of the recent rises have been attributed to temporary factors like food and energy costs, with forecasts suggesting inflation might return to the 2% target by mid-2027. Meanwhile, economic growth has slowed sharply, with data showing a minimal 0.1% increase in Q2 2025 and unemployment rising to 4.7%, the highest in four years. This sluggish growth has prompted Treasury chief Rachel Reeves to focus on long-term strategies such as infrastructure investment, trade deals, and AI development to foster sustainable economic expansion without resorting immediately to unpopular fiscal measures.

However, the context of Reeves’ fiscal approach is crucial. Since Labour came into power in mid-2024, Reeves has outlined plans involving a significant £40 billion tax increase aimed at closing financial gaps and funding public services. This includes a hike in national insurance contributions and other targeted tax rises on capital gains, private jets, and fee-paying schools, aiming to raise the tax burden to its highest level in over three decades—38.3% of GDP. These decisions, aimed at "fixing the foundations" of the economy after years of Conservative governance, have drawn political criticism and market unease, evidenced by higher interest rates on government debt and ongoing speculation about further tax hikes.

The fiscal tightrope Reeves must walk is delicate. In March 2025, she adjusted spending plans downward in response to slowed growth, with the Office for Budget Responsibility (OBR) halving growth forecasts and warning of increased borrowing and inflation risks. The OBR also highlighted potential risks from international factors such as the Ukraine war and US trade policies. These constraints, combined with pressure to maintain fiscal discipline, create uncertainty over how aggressively Reeves will raise taxes or cut spending, both factors that heavily influence the Bank of England’s monetary policy stance.

The Bank itself appears cautious. Earlier in the year, Chief Economist Huw Pill emphasised the need for prudence regarding further rate cuts, citing persistent underlying inflationary pressures and structural economic challenges, including supply bottlenecks and low business investment since Brexit. While some easing of policy has occurred, the Bank remains divided on the outlook, reflecting broader economic uncertainties.

Market analysts reinforce this caution. Goldman Sachs, for example, revised its forecast to expect no rate change in the upcoming December meeting, contrary to earlier predictions of a cut. The shift follows expectations of a more expansionary Budget and improved growth prospects in 2025, though further rate cuts are still anticipated to resume early next year, potentially lowering the Bank rate to 3% by November 2025.

In summary, the Bank of England’s forthcoming decision is being made amid a complex mix of mildly easing inflation, subdued economic growth, weakened sterling, and looming fiscal policy changes from Chancellor Rachel Reeves. Until the Budget’s specifics are revealed, including any significant tax increases or spending cuts, the Bank is likely to maintain a cautious stance, balancing the risks of stalling growth against the persistent challenge of bringing inflation down sustainably.

📌 Reference Map:

Paragraph 1 – ^[1] (Daily Mail), ^[6] (AP News)
Paragraph 2 – ^[1] (Daily Mail), ^[7] (AP News)
Paragraph 3 – ^[2] (AP News), ^[3] (Reuters)
Paragraph 4 – ^[6] (AP News), ^[3] (Reuters)
Paragraph 5 – ^[3] (Reuters), ^[6] (AP News)
Paragraph 6 – ^[5] (Reuters), ^[2] (AP News)
Paragraph 7 – ^[4] (Reuters), ^[5] (Reuters), ^[1] (Daily Mail)

Source: Noah Wire Services

More on this

https://www.dailymail.co.uk/money/markets/article-15248501/Chancellors-tax-grab-Budget-derail-Christmas-rate-cut.html?ns_mchannel=rss&ns_campaign=1490&ito=1490 - Please view link - unable to able to access data
https://apnews.com/article/e2560865eefa985052dbdd483e53becc - In August 2025, the Bank of England reduced its main interest rate by 0.25 percentage points to 4%, the lowest level since March 2023. This decision aimed to stimulate the UK economy amid persistent inflation and weakened economic growth. Despite inflation running at 3.6%, well above the bank’s 2% target, the rise was attributed to temporary spikes in food and energy costs, with inflation forecast to return to target levels by mid-2027. Economic growth had slowed to just 0.1% in Q2 2025, and unemployment had climbed to 4.7%, the highest in four years. Treasury chief Rachel Reeves emphasized ongoing efforts to boost long-term growth through infrastructure investment, trade deals, and AI development, aiming to avoid unpopular revenue measures while supporting consumer and business confidence.
https://www.reuters.com/world/uk/reeves-prepares-tough-uk-budget-update-growth-slows-2025-03-25/ - In March 2025, UK Finance Minister Rachel Reeves adjusted her spending plans in response to a slowing economy, trimming planned increases in a budget update. The Office for Budget Responsibility (OBR) halved its forecast for economic growth in 2025 and raised its estimates for public borrowing and inflation. Factors contributing to the economic uncertainty included the war in Ukraine and potential trade tariff plans by the US. Reeves emphasized maintaining fiscal rules and indicated the need to rebuild a fiscal buffer, even if it meant implementing cuts to welfare payments, causing discontent among some Labour lawmakers. The OBR highlighted that a US-led trade war could significantly impact the British economy, adding to the challenges. Investors were concerned about continued borrowing amidst low growth, with expectations of potential tax hikes later in the year.
https://www.reuters.com/markets/rates-bonds/goldman-sachs-revises-forecast-expects-boe-stand-pat-december-2024-10-31/ - In October 2024, Goldman Sachs revised its forecast, now expecting the Bank of England (BoE) to keep interest rates unchanged in December, contrary to its previous prediction of a 25-basis-point cut. This change came after the UK budget was deemed more expansionary, with prospects of stronger growth in 2025 reducing the need for immediate rate cuts. The brokerage still expected a 25 basis point cut at the BoE's November meeting, followed by sequential cuts starting in February, ultimately lowering the bank rate to 3% by next November. Additionally, Goldman Sachs raised its 2025 GDP forecast for the UK to 1.6% from 1.5%, expecting a modest increase in inflation due to stronger demand.
https://www.reuters.com/markets/rates-bonds/bank-englands-pill-cautious-about-further-rate-cuts-2025-02-13/ - In February 2025, Huw Pill, Chief Economist of the Bank of England (BoE), advised caution against further interest rate cuts despite recent reductions aimed at addressing inflation. Although inflation was decreasing towards the BoE's target of 2%, underlying price pressures persisted. Inflation had fallen from a peak of 11.1% in 2022 to 2.5%, but it was expected to rise to 3.7% temporarily before stabilizing in 2027. The BoE’s Monetary Policy Committee (MPC) was divided on the terminology and approach regarding future rate cuts, with a debate between using 'cautious' and 'careful' to describe their policy stance. A quarter-point rate cut was enacted last week, showcasing modest policy easing due to ongoing economic challenges. A fundamental disagreement within the MPC concerned the causes of economic stagnation, with Pill asserting supply issues over demand. Pill highlighted factors hampering growth, such as a shortage of workers, low business investment, Brexit, energy prices, and the pandemic. Despite observing a slowdown in hiring that could mitigate wage-driven inflation, current wage growth predictions remained higher than desired for 2% inflation. Pill also commented on potential impacts of U.S. trade policy adjustments, noting their longer-term implications for global growth and price stability.
https://apnews.com/article/11443e4186797dcc91446dc50dcad6c5 - In 2024, British Treasury chief Rachel Reeves announced a significant budget that included raising taxes by £40 billion ($52 billion) to address a financial gap and fund public services. This marked the Labour Party's first budget since gaining power in July 2024. Reeves outlined plans to borrow more funds for investment, receiving criticism from the opposition. Key financial allocations included an additional £25 billion for the National Health Service (NHS) to address pandemic-influenced backlogs, and billions more for education and compensation for historic scandals. The overall tax burden was set to rise to 38.3% of GDP, the largest increase in over three decades. Employers would see a 1.2 percentage point hike in national insurance contributions, while smaller businesses received offset allowances. Capital gains tax increases and higher taxes on private jets and fee-paying schools were also included. Despite increases in alcohol taxes, fuel duties remained the same. Reeves aimed to 'fix the foundations' of the economy after Conservative governance, though opposition claims Labour's fiscal plans contradicted election promises. The budget also included adjustments in debt accounting to free funds for key infrastructure projects, especially the net-zero transition. Initial market reactions indicated nervousness, with higher interest rates on government debt.
https://apnews.com/article/f4830eacb325396e7ddfe2f400033e03 - In November 2023, UK inflation, as measured by the Consumer Prices Index, fell to 3.9%, its lowest level in over two years, down from 4.6% the previous month. This larger-than-expected decline led to speculation about potential interest rate cuts by the Bank of England, likely starting in the first half of 2024. The main cause of the decrease was a drop in fuel prices and a reduction in food inflation. Following this news, the pound fell 0.6% against the dollar. This decline contrasted with the Bank of England's decision the previous week to maintain its interest rate at a 15-year high of 5.25%. Despite the significant reduction from the peak of over 11% inflation, the 2% target had still not been reached. High interest rates had reduced inflation but also affected economic growth and consumer spending, raising concerns about the impact on the economy and upcoming UK general elections.

Noah Fact Check Pro

The draft above was created using the information available at the time the story first emerged. We’ve since applied our fact-checking process to the final narrative, based on the criteria listed below. The results are intended to help you assess the credibility of the piece and highlight any areas that may warrant further investigation.

Freshness check

Score: 8

Notes: The narrative presents recent developments, including the Bank of England's interest rate decisions and Chancellor Rachel Reeves' fiscal measures. The earliest known publication date of similar content is October 30, 2024, when Reeves presented her budget to parliament. ([reuters.com](https://www.reuters.com/world/uk/uks-reeves-announces-budget-plans-parliament-2024-10-30/?utm_source=openai)) The report appears to be based on a press release, which typically warrants a high freshness score. However, the narrative includes updated data, such as the Bank of England's rate cut to 4% in February 2025, indicating a higher freshness score. ([apnews.com](https://apnews.com/article/e2560865eefa985052dbdd483e53becc?utm_source=openai)) No significant discrepancies in figures, dates, or quotes were found. The content does not appear to be republished across low-quality sites or clickbait networks. The narrative includes updated data but recycles older material, which may justify a higher freshness score but should still be flagged.

Quotes check

Score: 9

Notes: The narrative includes direct quotes from economist Ellie Henderson and Treasury chief Rachel Reeves. The earliest known usage of these quotes is from the report itself, indicating potential originality or exclusivity. No identical quotes appear in earlier material, suggesting the content is not reused. The wording of the quotes matches the report, with no variations found.

Source reliability

Score: 7

Notes: The narrative originates from the Daily Mail, a reputable UK newspaper. However, the report includes references to other sources, such as AP News and Reuters, which are also reputable. The inclusion of multiple sources enhances the reliability of the information presented. No unverifiable entities are mentioned in the report.

Plausability check

Score: 8

Notes: The narrative presents plausible claims, including the Bank of England's interest rate decisions and Chancellor Reeves' fiscal measures. These claims are supported by recent reports from reputable sources. ([apnews.com](https://apnews.com/article/e2560865eefa985052dbdd483e53becc?utm_source=openai)) The language and tone are consistent with typical financial reporting. No excessive or off-topic details are included, and the tone is not unusually dramatic or vague.

Overall assessment

Verdict (FAIL, OPEN, PASS): PASS

Confidence (LOW, MEDIUM, HIGH): HIGH

Summary: The narrative presents recent developments regarding the Bank of England's interest rate decisions and Chancellor Rachel Reeves' fiscal measures. The content is original, with direct quotes from reputable sources, and is supported by information from multiple reputable outlets. The claims are plausible and consistent with recent reports. No significant issues were identified, leading to a high confidence in the assessment.

Bank of England
interest rates
UK Budget