Bank of England keeps rates on hold as inflation proves sticky
Professor Joe Nellis September 18th 2025
Professor Joe Nellis is economic adviser at MHA, the accountancy and advisory firm.
In a move that comes as no surprise, the Bank of England’s Monetary Policy Committee (MPC) has voted to keep interest rates unchanged at 4%.
The decision reflects the MPC’s concern that inflation, which held steady at 3.8% in August, remains too far above the 2% target to justify an early easing. Persistent wage growth and services inflation are the key reasons for this cautious stance, with underlying price pressures proving slow to unwind.
The Bank of England is prioritising stability over speed. By holding interest rates, the Bank is sending a clear message that it will not throw caution to the wind in looking to support economic recovery if it risks causing inflation to soar.
The Bank will want to see several months of softer pay and prices before cutting. Wage growth has begun to cool - wage growth (excluding bonuses) is now at 4.8%, its slowest since May 2022 - but the Bank will want to see this trajectory continue.
If it does, then we can expect to see one more cut to interest rates before the year is out.
As the Autumn Budget looms, interest rates remain much higher than the Chancellor would have liked, as she grapples with a sluggish economy, lower productivity forecast, and seemingly ever-tightening fiscal headroom. And unlike her counterparts in the US, who can celebrate the Federal Reserve cutting rates for the first time in almost a year and signalling two further reductions this year, the Chancellor cannot expect the Bank to be so supportive in the short-term.
As the Chancellor won’t (and can’t) impose significant spending cuts, she finds herself boxed into a corner — by overseeing large-scale tax increases she would solve the immediate issue of tight government finances but seriously damage economic growth, resulting in diminishing tax revenues and a perpetuating need to raise more revenue through tax. Yet if she does not raise the extra revenue now, she risks failing to meet the self-imposed fiscal rules that her tenure at the Treasury has been so firmly founded on.
"A cut to interest rates later in the year would do the Chancellor no harm, but she finds herself in a deeper hole than the Bank of England alone can dig her out of."
