Bank of England holds interest rate at 4.75%

The Bank of England (BoE) has decided to leave interest rates unchanged at 4.75%, highlighting recent increases in inflation.   

The Monetary Policy Committee (MPC) voted by a majority of 6–3 to maintain the rate at 4.75%. 

Three members preferred to reduce it by 0.25 percentage points, to 4.5%.

The decision comes as inflation rose for the second month in a row to 2.6% from 1.7% in September - pushing it further above the Bank's target of 2%.

In November, the Bank's governor Andrew Bailey said the path for rates would likely be “downward from here” but cautioned that the process would be gradual.

Headline CPI inflation is expected to continue to rise slightly in the near term. Although household inflation expectations have largely normalised, some indicators have increased recently.

Most indicators of UK near-term activity have declined. The BoE expects GDP growth to have been weaker at the end of the year than projected in the November Monetary Policy Report. 

The Committee now judges that the labour market is broadly in balance. 

Annual private sector regular average weekly earnings growth picked up quite sharply in the three months to October, it said, but has tended to be more volatile than other wage indicators. 

The latest intelligence suggests that average pay settlements in 2025 will be within a range of 3 to 4%. 

The BoE said: “There remains significant uncertainty around developments in the labour market.

“Monetary policy has been guided by the need to squeeze remaining inflationary pressures out of the economy to achieve the 2% target both in a timely manner and on a lasting basis.

“Over recent quarters there has been progress in disinflation, particularly as previous external shocks have abated, although remaining domestic inflationary pressures are resolving more slowly.

“The Committee continues to consider a range of cases for how the past global shocks that drove up inflation may unwind, and therefore how persistent domestic inflationary pressures may be.” 

The MPC is also monitoring the impact on growth and inflationary pressures from the measures announced in the Autumn Budget, and from geopolitical tensions and trade policy uncertainty. 

These developments, it said, have generated additional uncertainties around the economic outlook.

The BoE added: “The Committee continues to monitor closely the risks of inflation persistence and will assess the extent to which the evolving evidence is consistent with more constrained supply, which could sustain inflationary pressures, or with weaker demand, which could lead to the emergence of spare capacity in the economy and push down inflation. 

“A gradual approach to removing monetary policy restraint remains appropriate. 

“Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.

“The Committee will decide the appropriate degree of monetary policy restrictiveness at each meeting.”

When it last reviewed interest rates in November, it cut interest rates for the second time this year by a quarter of a percentage point to 4.75%.

The Bank had left UK interest rates unchanged at 5% when it reviewed them in September, warning that cutting too fast or too much could negatively impact inflation.

It had cut the interest rate to 5% in August, the first rate cut since 2020.