The Bank of England kept interest rates unchanged at 4% on Thursday, as policymakers balanced persistent inflationary pressures with signs of a slowing economy. The Monetary Policy Committee (MPC) voted 7–2 in favor of holding steady, marking a pause after August’s 25 basis point cut.

The decision, widely expected by markets, came a day after data showed UK inflation holding at 3.8% in August, with core inflation dipping slightly to 3.6% and services inflation cooling to 4.7%. Policymakers said they expect inflation to peak at 4% in September before easing toward the 2% target by early 2026.

Still, weak growth and a cooling jobs market have complicated the picture. July’s GDP data showed the economy flatlining, while wage growth has begun to ease. The Bank noted both trends as central to its cautious approach.

The economy has shown little momentum in recent months, leaving policymakers wary of moving too quickly on rate cuts. A softer labour market may relieve inflationary pressures, but risks of prolonged stagnation are rising.

With the next MPC meeting set for November, just weeks before the government’s Autumn Budget, analysts say fiscal policy could play a role in shaping the Bank’s outlook. Finance Minister Rachel Reeves is widely expected to announce tax rises on November 26 to close the fiscal gap, potentially influencing the timing of further monetary easing.

Economists said Thursday’s pause underlines the committee’s preference for more evidence before cutting again.

“The good news is that August inflation data corrected some of the upside surprise we saw last month. The bad news is CPI may have a little further to go before hitting its peak,” said Sanjay Raja, chief UK economist at Deutsche Bank. He added that policymakers want “a larger accumulation of evidence before dialing down restrictive policy again.”

Deutsche Bank now expects a slightly longer hold before the next cut, with risks tilted toward misreading temporary moves as structural improvements.

Despite the pause, the housing and mortgage sectors have shown signs of resilience. Lenders had largely priced in Thursday’s decision, with new mortgage products and improved buyer sentiment following earlier rate cuts.

“The good news is that previous rate cuts have already brought about a greater degree of confidence amongst lenders and buyers,” said Stephanie Daley, director at mortgage broker Alexander Hall. She added that product innovation, from low-deposit offers to higher income multiples—has kept market activity steady.

Still, uncertainty persists. Jonathan Samuels, CEO of Octane Capital, warned that the economy remains “in a state of limbo,” with inflation stuck above target and growth flat.

Estate agents cautioned that while stability is welcome, demand may remain muted in the near term.

“This could result in a far longer winter than many home sellers may have liked, with the chances of Santa leaving a sale completion under the tree this December looking far slimmer,” said Verona Frankish, CEO of Yopa. However, she stressed that the longer-term outlook points to “continued house price growth and a steady and stable level of transactions.”

Attention now shifts to the Bank’s November meeting. With fiscal tightening likely on the horizon, some analysts believe the MPC could have more flexibility to ease policy in 2025. For now, policymakers remain cautious, committed to monitoring inflation and growth before making their next move.

At 4%, UK interest rates remain at their lowest level since early 2023, but officials have made clear they are not yet ready to declare victory on inflation.