Bank of England leaves interest rates on hold
By Abigail Townsend
Date: Thursday 18 Sep 2025
(Sharecast News) - The Bank of England left the cost of borrowing unchanged on Thursday, as widely expected, on the back of persistent inflation.
The rate-setting Monetary Policy Committee voted by a majority of seven-to-two to leave interest rates at 4%.
Swati Dhingra and Alan Taylor, both known for their more dovish positions, voted to cut by 25 basis points.
The MPC has reduced rates three times this year, including a 25bps trim in August. But it continues to juggle conflicting economic headwinds.
Growth is sluggish at best, with GDP slowing to 0.2% in three months to July, from 0.3% in the second quarter. There are also signs of a weakening jobs market.
The BoE currently expects headline GDP to increase by around 0.4% in the third quarter.
But at 3.8% inflation remains well above the central bank's long-term target of 2%.
The BoE acknowledged there had been "substantial" disinflation over the last two and half years. But it continued: "The committee remains focused on squeezing out any existing or emerging persistent inflationary pressures, to return inflation sustainably to 2%."
It said that while monetary policy was "not on a pre-set path", a "gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate".
The MPC also voted by seven-to-two to slow its quantitative tightening bond-selling programme, from £100bn to £70bn, to curb rising bond yields.
The move was in line with consensus following a spike in volatility across bond markets.
The BoE has been reducing its gilt holdings since 2022, by selling off some of the bonds it acquired during periods of quantitative easing.
Steve Clayton, head of equity funds at Hargreaves Lansdown, said another cut was unlikely this year: "Services prices remain far above the overall 2% target, and goods price inflation edged up towards 3% last month.
"The BoE will be watching employment and growth data closely, because it will worry about choking off growth if rates stay too high for too long. But for now, its hands are tied."
ING said: "There is very little in the latest BoE decision that's likely to rock the boat.
"August's decision made it abundantly clear that the BoE is growing more reticent to cut rates further from here. Some have gone as far as to say the easing cycle is over.
"We disagree with that, even if the timing of future cuts looks less clear. At 4%, Bank Rate is above neutral, and we think there are two to three further cuts to come. We're still narrowly favouring one more cut this year, though that's a low conviction view."
On Wednesday, the Federal Reserve cut rates by a quarter point, its first reduction this year, and signalled more to come.
It flagged that the softening labour market was more of a concern than any potential rise in inflation on the back of Donald Trump's tariff regime.
The Fed has come under growing pressure from Trump in recent months to lower the cost of borrowing.
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