BoE’s Knife-Edge Hold Puts December Rate Cut in Play

A 5-4 hold that sounds like a warning shot

On November 6, 2025, the Bank of England kept Bank Rate at 4.0% in a knife-edge 5-4 decision that immediately sharpened expectations for a cut at its December meeting. Markets had largely anticipated no move, but not such a narrow split. Governor Andrew Bailey joined the majority voting to hold, yet signalled that inflation risks had shifted lower and that a gradual downward path for rates is now the central case if disinflation continues. For investors, the BoE’s knife-edge hold puts December rate cut prospects squarely in play and underlines how finely balanced the policy debate has become.

Inside the split: who wanted to move now

Four Monetary Policy Committee members argued for a 25 basis point cut, citing evidence that underlying price pressures are easing and that tighter policy is increasingly weighing on activity. Bailey, using his casting role in effect, sided with those preferring to wait for confirmation from fresh inflation and labour data, and for clarity from the government’s late November budget. The outcome, the narrowest possible majority, signals an institution that is close to delivering more support and that is prepared to move quickly if upcoming data validate its disinflation narrative.

Inflation still high, but momentum is softer

Headline consumer price inflation stands at 3.8 percent, the highest in the G7 and still nearly double the 2 percent target. However, recent readings have surprised on the downside, and wage growth has cooled from earlier peaks. The Bank reiterated that inflation has likely passed its high point and is expected to drift lower through the winter provided energy markets stay contained and domestic cost pressures ease. That assessment allowed policymakers to retire some of the more hawkish language from previous statements and to acknowledge that the balance of risks has tilted away from entrenched inflation and toward weaker demand.

Growth strains and a softening labour market

The hold comes against a backdrop of sluggish output and a cooling jobs market. Business surveys point to softer order books, investment hesitation and pressure on smaller firms. Unemployment has edged higher, vacancy rates have narrowed, and pay settlements have become less aggressive, all consistent with a cycle that is losing steam. The Bank’s updated projections show only modest growth into 2026, even assuming a gentle glide path for rates. That mix, sticky but falling inflation and fading momentum, is driving calls inside and outside the MPC to avoid keeping policy unnecessarily tight for too long.

Markets read a clear easing bias

Gilt markets and sterling delivered a measured verdict. Short-end yields slipped as traders marked up the probability of a December move, while longer maturities held relatively steady, reflecting confidence that any easing will be gradual. The probability of a cut at the next meeting shifted into majority territory on rate screens, although investors stopped short of treating it as a done deal. Sterling traded cautiously, with the message that a BoE knife-edge hold eyes December rate cut potential weakening some of the currency’s earlier support, particularly against peers whose central banks have already sketched clearer paths lower.

Why Bailey is keeping his options open

Bailey’s remarks framed the decision as a choice for patience, not reluctance to cut. He stressed that there is “value in waiting” to see October and November data and to assess the impact of the upcoming budget on demand, inflation expectations and market conditions. By signalling that the upside risk to inflation has diminished, while refusing to pre-commit, the Governor preserves flexibility: if disinflation proceeds and fiscal policy is broadly credible, he can shift into the cutting camp; if price pressures prove stickier, he can argue that the Bank was right not to move prematurely.

Budget politics and policy timing

The November budget from Chancellor Rachel Reeves now sits at the centre of the BoE’s calculus. Any package of tax rises, spending choices and investment plans will feed directly into growth forecasts and inflation risks. A tighter fiscal stance would strengthen the case for an earlier rate cut, since combined restraint could weigh more heavily on households and businesses. A looser stance would argue for caution. By deferring action, the MPC effectively ties its December decision to both incoming data and the credibility of the government’s medium term fiscal strategy.

Impact on households, mortgages and credit

For households and firms, the message is that borrowing costs are unlikely to rise further and could start to decline within months if conditions allow. Fixed rate mortgage holders coming up for renewal still face higher costs than during the ultra low rate era, but the threat of another hike has faded. Corporate treasurers can plan funding with a base case that rates will edge down through 2026 rather than spike higher. At the same time, the Bank was careful not to promise rapid relief, reminding borrowers that any cutting cycle will be shallow and conditional.

How the decision fits the global picture

The BoE’s stance sits between central banks that have already cut more aggressively and those that remain firmly on hold. With UK inflation still above peers, officials are keen to avoid signalling complacency. Yet the close vote and softer language echo a broader global shift toward easing as growth softens and earlier tightening feeds through. For global investors, the decision reinforces the view that UK assets are moving into a phase where rate risk is skewed to the downside, while currency performance will depend on how quickly the BoE can cut without undermining inflation credibility.

Risks that could derail a December move

Several factors could stay the Bank’s hand. A surprise re-acceleration in services inflation, renewed energy shocks, or evidence that wage growth is not moderating would all argue for a longer hold. A budget that unsettles markets or raises doubts about fiscal discipline could also complicate the case for cutting. Conversely, a benign budget, softer data and contained inflation expectations would make it difficult to justify another knife-edge hold. The next set of releases will therefore carry outsized weight for a committee already split almost down the middle.

Bottom line

The Bank of England’s knife-edge hold at 4.0 percent signals that the tightening cycle is effectively over and that a December rate cut is now a live option, not a distant possibility. With inflation easing and growth fragile, policymakers are edging toward support, and the coming weeks of data and fiscal decisions will determine whether this finely balanced stance tips into the first step down.