Bank of England Urged to Delay Interest Rate Cut Until Budget Clarity

The Bank of England faces mounting pressure to postpone cutting interest rates this month, as uncertainty hangs over Chancellor Rachel Reeves’s forthcoming budget. The Times shadow monetary policy committee has voted by a narrow margin of five to four to keep the cost of borrowing steady at 4 per cent. The close outcome reflects deep divisions among economists over whether it is prudent to move now, or to wait for clarity on tax and spending measures due to be announced later in November.

Some members of both the shadow committee and the central bank advocate for a rate cut, pointing to lower than expected inflation at 3.8 per cent, a notable slowdown in food price increases, and rising unemployment which has reached a four-year high. Economist Kitty Ussher has openly supported a reduction, arguing that the UK is now experiencing entrenched disinflation across its economy. Wage inflation is also falling more rapidly than anticipated, contributing to the case for easing policy sooner rather than later.

By contrast, others caution against pre-empting government policy. Sir John Gieve, a former deputy governor, notes that the budget is expected to tighten fiscal policy in order to address a larger than planned deficit, due in part to an Office for Budget Responsibility downgrade of productivity forecasts and government borrowing outpacing expectations. Any substantial rise in taxes, particularly income tax, would dampen inflationary pressures and economic growth, thus increasing the need for stimulus from the Bank.

Chancellor Reeves, addressing the nation about the scale of economic challenge ahead of her fiscal statement, has declined to rule out rises in income tax, national insurance or VAT. Labour’s general election campaign notably promised not to raise these taxes, but a so-called “fiscal hole” reportedly as large as £40 billion may leave her with little choice if she is to meet borrowing rules. An expected U-turn on £6 billion in welfare cuts and spiralling debt costs further complicate the picture.

For the Bank’s Monetary Policy Committee, the challenge is heightened by greater than usual uncertainty around both the size and composition of fiscal changes to come. Former rate-setter Andrew Sentance suggests that clarity on Reeves’s plans would allow for more confident monetary action after the budget, which is set for presentation later this month.

Market expectations have shifted amid surprisingly resilient data, with some analysts now forecasting a possible final quarter-point cut before the end of 2025. Having already reduced the base rate from a peak of 5.25 per cent to 4 per cent in five moves, the Bank must now weigh the risks of acting too soon against those of waiting for a more defined fiscal landscape. On Thursday, each member of the Bank’s rate-setting panel will outline their rationale for their interest rate decision in new quarterly economic forecasts, providing further insight into the complex judgement calls at play.