Bank of England holds interest rates at 4% ahead of make-or-break budget

8 hours ago7 min read3 comments

The Bank of England’s Monetary Policy Committee has held its benchmark interest rate steady at 4% for the second consecutive meeting, a decision that lands squarely in the center of City forecasts and sets a critical stage for Chancellor Rachel Reeves’s impending budget announcement in just under three weeks. This period of monetary stability, while anticipated, is far from tranquil; it represents a delicate balancing act for policymakers who are navigating an inflation rate stubbornly perched at nearly double the official 2% target.The MPC's nine members are effectively in a holding pattern, their collective finger paused above the trigger, as they await the fiscal shockwaves—or support—expected from the Treasury. This is the calm before the storm, a strategic pause reminiscent of the Fed’s own cautious maneuvers in previous economic cycles, where central banks opt to gather more data before committing to a definitive path.The underlying tension is palpable across trading desks from London to New York, as analysts dissect every syllable from Governor Andrew Bailey’s subsequent communications for hints of a dovish tilt or a resolutely hawkish stance. The core dilemma is a classic one: combat persistent inflation with higher rates and risk stifling fragile economic growth, or prioritize growth and risk letting inflation become further entrenched.This decision is not made in a vacuum; global bond markets are watching, with gilt yields reacting to the slightest hint of a policy shift, and the pound’s volatility against the dollar and euro hangs in the balance. Historical precedent, such as the Bank’s actions following the 2008 financial crisis or the inflationary spirals of the 1970s, provides a sobering backdrop, reminding us that missteps in this high-stakes environment can have decade-long consequences.The upcoming budget is now the dominant variable in this complex equation. Will Reeves unveil a package of stimulative measures that could force the MPC’s hand toward tightening, or will it be a budget of austerity that aligns with the Bank’s inflation-fighting mandate? The interplay between fiscal and monetary policy has never been more critical, and the City is bracing for a make-or-break moment that will define the UK’s economic trajectory for the remainder of the decade.

#Bank of England

#interest rates

#monetary policy

#inflation

#budget

#Rachel Reeves

#featured

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