Commenting on the Bank of England’s decision to hold interest rates, Julian Jessop, Economics Fellow at the Institute of Economic Affairs said:

“The Bank of England’s decision to keep interest rates on hold today was no surprise, but the 5-4 vote was much closer than most had anticipated. Unfortunately, this dovish tilt owes more to rising concerns about growth and jobs than to increasing optimism about inflation.

“In particular, Bank staff nudged down their GDP forecast for 2026 from 1.2% to just 0.9%. This would be slower than last year’s estimated 1.4% and, more worryingly, a full half a percent lower than the OBR’s forecast of 1.4% for 2026 which was baked into the last Budget.

“Bank staff also raised their forecasts for the unemployment rate for every year from 2026 to 2028. The economy is still expected to add jobs, but not enough to keep pace with the increasing number of people looking for work.

“This might have been enough to tip the balance towards a rate cut. However, the Bank of England has been unable to ease policy as quickly as many other central banks because of the UK’s relatively high rate of inflation. This mainly results from government policies, notably on tax, energy prices, and the labour market.

“Business surveys suggest that underlying cost and price pressures remain strong and may even be strengthening, while inflation expectations are still too high for comfort. Growth in broad money and credit is also accelerating.

“On the other hand, activity continues to be weak, especially hiring, and both business and consumer confidence are fragile. There are a few signs of ‘green shoots’ in some surveys as Budget uncertainty eases. But these could easily be stamped out if the Bank is unable to deliver the further rate cuts that most expect.”