UK interest rates remain on hold as inflation eases slowly. Sterling steadies, the US dollar slips, and markets await key economic updates and budget guidance.
Key Insights:
- USD cools off from its latest peak
- EUR moves sideways with little direction
- GBP finds its footing
Market Recap:
Sterling posted modest gains on Thursday after the Bank of England kept interest rates steady at 4%, in line with expectations. The vote split showed a narrow majority in favour of holding rates, despite recent upside surprises in inflation. Policymakers signalled that price pressures are likely past their peak and reiterated expectations that inflation will move back toward the 2% target over the next two years, though they cautioned that economic activity remains fragile and unemployment is ticking higher.
Governor Bailey noted that rates are likely on a gradual downward path but emphasised the need for further data — including inflation readings and clarity from the upcoming budget — before considering additional rate cuts.
Across the Atlantic, the US dollar eased after a weaker-than-expected private employment update from Challenger, Gray & Christmas, Inc which recorded over 150k job cuts in October. The release contrasted with recent strong ADP jobs data, prompting traders to reassess the momentum in the US labour market.
Today's Market Watch:
The close 5–4 decision to keep rates on hold underlines the split views within the Bank of England’s committee — a reflection of the difficult backdrop the UK faces. Inflation remains the highest among the G7 at 3.8%, still well above the Bank’s 2% target, while economic growth stalls. This mix of stubborn price pressures and weak activity is making the Bank’s next move harder to predict.
Governor Bailey highlighted that policymakers would need more clarity on both upcoming inflation data and details from the government’s budget before committing to any policy change. Markets are watching closely, as any significant tax increases from Chancellor Reeves could effectively act as a tightening measure. If that happens, the BoE may feel more comfortable moving ahead with a rate cut as early as December.
What this means:
Monetary policy remains finely balanced. If fiscal policy takes on more of the burden, the Bank may have room to support the economy sooner. However, elevated inflation keeps the risk of delays in place, so interest rate expectations may remain volatile in the short term.
6th November 2025
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