The Bank of England’s Monetary Policy Committee (MPC) voted on 17 September to keep the Bank Rate at 4% by a majority of 7-2. Swati Dhingra and Alan Taylor dissented, calling for a 0.25 percentage point cut on the grounds that monetary policy is currently more restrictive than needed to bring inflation under control and is weighing too heavily on growth.
Although less divisive than August’s unprecedented 4-4-1 split – which required a second vote and resulted in a 25 basis point cut – the latest decision confirms that divisions persist within the MPC.
Underlying disinflation has generally continued, with wage pressures easing more clearly than prices. Annual CPI inflation stood at 3.8% in August and is expected to edge up in September before resuming its decline toward the 2% target. Analysts had not anticipated a rate cut this month, given inflation remains nearly double target, and Governor Andrew Bailey cautioned that “we’re not out of the woods yet.” Future easing was not ruled out, however, with the MPC stressing that “a gradual and careful approach to the further withdrawal of monetary policy restraint remained appropriate.”
The Committee remains mindful of the risk that this temporary uptick in inflation could reignite wage and price pressures. Pay growth, though still elevated, has been moderating and is projected to slow markedly over the rest of the year. Services inflation has been broadly stable in recent months. Nevertheless, upside risks to medium-term inflation remain central to the Committee’s outlook.
UK GDP growth has remained weak, reflecting a gradual loosening of labour market conditions and spare capacity in the economy. Domestic and geopolitical headwinds continue to weigh on activity. Monthly GDP was flat in July, after a 0.4% rise in June. Private-sector services output also stagnated, while manufacturing contracted sharply. A 20% rebound in exports to the US, consistent with expectations following the UK-US Economic Prosperity Deal, was a rare bright spot.
Elsewhere, the European Central Bank (ECB) decided on 11 September to leave its three key rates unchanged, with inflation close to the 2% medium-term target and the outlook broadly steady.
By contrast, the US Federal Reserve cut its key rate by 25 basis points on 17 September – its first reduction this year – setting the target range at 4 to 4.25%. Chair Jerome Powell explained that “the balance of risks has shifted” toward employment, in contrast to earlier months when inflation concerns were dominant.
For more details, you can get the Monetary Policy Summary and minutes of the MPC meeting from the Bank’s website at https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2025/september-2025 or request this from MTA.