Highlights

• At today’s meeting the BoE’s Monetary Policy Committee (MPC) in a very narrow vote left bank rate unchanged at 4.0%. Only five out of nine members opted for keeping the key rate unchanged, four wanted a 25 bps cut. 
• The MPC acknowledged progress in underlying disinflation and expects it to continue while judging that headline inflation has peaked. It also sees risks more balanced now but said that more evidence was needed. 
• The direction of travel is still towards lower rates but the extent of further reductions will “depend on the evolution of the inflation outlook.” The updated forecast sees inflation falling to 2% within two years under the market assumption of a further reduction of the key rate to 3.5%. 
• Chancellor Reeves will present the Autumn Budget on November 26. In pre-Budget speeches she made clear that consolidation measures (not even ruling out tax hikes) will compensate for the expected fiscal shortfall leading to increased fiscal tightening in the range of GBP 22 bn to GBP 35 bn. 
• We think that the 2026 budget will push the inflation outlook to the downside and ultimately trigger more rate cuts. We increased the expected cumulative rate cuts until year-end 2026 from 50 bps to 75 bps implying a bank rate of 3.25% by the end of next year, somewhat below market pricing. We see the risks even tilted towards further cuts. 

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