Key Takeaways
- Futures markets don’t expect an interest rate cut from the Bank of England for the rest of the year.
- Interest rate setting meeting starts on the same day that UK inflation data for August is released.
- Political and economic volatility provides the backdrop to the Bank of England’s decision.
Following the interest rate cut in August, the Bank of England is not expected to make any changes to to monetary policy when it meets this week.
According to the latest interest rate swaps data, there is just a 2.1% chance of a rate cut when the bank’s Monetary Policy Committee announces its decision on Sept. 18. The announcement on interest rates will come a day after UK inflation data for August is released.
This would leave UK interest rates at 4%, following three quarter-point cuts in February, May, and August.
One immediate issue investors will be watching is another very close vote when the MPC next meets, which could compound current uncertainty around the Bank of England’s longer-term intentions. When it last met in August, a second vote was required to form a majority decision—the first such incident in its 28-year history of independence.
“Last month’s vote was contentious, and we could be in for the same again,” says Morningstar’s chief European market strategist, Michael Field.
“Central banks are always balancing two forces: inflation and the health of the economy, but usually the decision is easier to make, with the need to stimulate or subdue one or the other relatively obvious.
“The resurgence of inflation in the UK of late has made this decision more complicated. Economic growth is still weak in the UK, but inflation has spiked to almost 4%, close to double the bank’s targeted level. Economists believe this is transitory, but cutting rates at this stage may not help inflation in getting back to normalized levels.
“Economists polled recently believe the BOE will cut rates once more this year, but whether this singular rate cut will come this month or later in the year will really come down to another knife-edge decision.”
Is a November Interest Rate Cut Now Off the Cards?
Market pricing at the start of 2025 set up the prospect of quarterly rate cuts in February, May, August, and November. But after the Bank of England’s August meeting, futures markets lowered expectations for a November rate cut.
Further cuts in November and December are seen only to be 17.2% and 21.6% likely, the data shows. This would close the bank’s year with three rate cuts under its belt, and break the quarterly cut pattern started in August 2024. Rate cuts in the early months of 2026 are now seen to be less likely too, with a cut at the MPC’s February meeting only deemed 40% likely.
UK interest rates rose from 0.1% in December 2021 to 5.25% in August 2023 to counter surging inflation. The Bank of England began cutting rates in August 2024.
Where Next for UK Interest Rates?
The Bank of England is grappling with a host of global and domestic problems. UK investors still don’t know the full effects of US tariffs on the economy, while UK gross domestic product growth endured a slowdown in the second quarter of 2025. The economy showed no growth in July, according to ONS figures released on Sept. 12.
Talk of a recession is never too far away, thanks in part to a slowdown in hiring.
“The trade war is shaping up as a relatively modest near-term headwind, offering a slight disinflationary impulse for the UK economy,” says Morningstar international economist Grant Slade.
“Consequently, the BOE remains more concerned about domestic conditions, particularly the labor market. The labor market is softening, as evidenced by the unemployment rate, which is now ticking up. Still, wage inflation remains at a level that is still not consistent with the BOE’s long-term 2% inflation target.
“This, in combination with the resurgence of inflation in recent months, is likely to lead the BOE to be rather cautious in lowering interest rates further in 2025. Notwithstanding, we see scope for meaningful monetary easing in 2026 as wage and price inflation cools in coming quarters.”
The Bank of England’s governor, Andrew Bailey, has admitted that there is now “considerably more doubt” about the next rate cut.
UK Inflation and UK Political Turmoil
Headline inflation remains above the official 2% target and is expected to hit 4% in September. The latest reading of UK headline inflation for July saw a rise in CPI to 3.8%; August data is released on Sept. 17 by the Office for National Statistics and is expected to show a rise in CPI to 3.9%.
The UK’s domestic political problems are also contributing to this uncertainty over rate cuts. In early September, UK gilt yields spiked again, with the yield on the UK’s 30-year gilt hitting a 27-year high as concerns over the government’s fiscal position combined with a global trend of rising bond yields to put the bond market on edge.
A tax scandal involving the now-former deputy prime minister, Angela Rayner, forced the prime minister’s hand and resulted in a cabinet reshuffle.
Chancellor Rachel Reeves remains in post for now, and a late UK autumn budget has been scheduled for Nov. 26, but markets are still extremely unsure about the direction of UK taxation and spending, amid a multibillion-pound fiscal “black hole” in the government’s finances.
This is not an issue the bank can solve directly, but it does mean the MPC is more likely to be cautious in assessing the impact of rate decisions on the UK’s already-fragile economy. Investors will be keen to see how the bank addresses this in its accompanying statement on Sept. 18.
When Are the Bank of England’s Next Interest Rate Decisions?
Only two Bank of England meetings remain in 2025. The interest rate decisions will be announced on the following dates:
- Nov. 6.
- Dec. 18.
- Feb. 2, 2026. Provisional
- March 19, 2026. Provisional.
- April 30, 2026. Provisional.
