BoE’s Bailey Signals Scope for Rate Cuts After Narrow 5–4 Hold Vote

Bank of England Governor Andrew Bailey struck a cautiously dovish tone on Thursday after the central bank kept interest rates unchanged at 3.75% in a surprisingly close 5–4 vote, signaling that borrowing costs are likely to fall further if economic conditions evolve as expected.

Speaking at the post-meeting press conference, Bailey acknowledged that the direction of policy is tilted toward easing, but stressed that future decisions will be finely balanced.

“Based on the current evidence, bank rate is likely to be reduced further, but judgments around further policy easing will become a closer call,” Bailey said.

He warned that cutting rates too quickly or by too much could risk prolonging inflation pressures, while waiting too long could trigger a sharper economic slowdown that would ultimately require deeper cuts later on.

“If the economy and the outlook for inflation evolve as we expect, there should be some scope for further easing in monetary policy in the period ahead,” Bailey added. “But for every cut in bank rate, how much further to go becomes a closer call.”

Bailey noted that market expectations for rates are broadly aligned with his thinking, though he emphasized that future moves will depend entirely on incoming data rather than any preset path.

“We’re moving into a more settled world where thinking about where the neutral rate might be becomes much more relevant,” he said, adding that while he would not endorse a specific level such as 3.25%, the current market curve appears “fairly reasonable.”

On inflation, Bailey said risks of persistent price pressures have continued to diminish. He pointed to fresh internal analysis suggesting that structural changes in wage-setting are unlikely to keep fueling inflation over the longer term, even though pay growth remains elevated.

“Our first key policy judgment is that the risk from greater inflation persistence has continued to become less pronounced,” he said.

However, he cautioned that the Bank still needs clearer evidence of a durable return to the 2% inflation target, particularly in measures of underlying inflation.

“We need to see more evidence that we’re going to get this sustainable return to target,” Bailey said. “That’s really an issue about underlying inflation.”

He added that as inflation continues to ease, this should gradually feed into expectations, strengthening confidence that policy is on the right track.

The narrow vote split, combined with Bailey’s comments and indications from external policymaker Catherine Mann that she could support cuts in the future, reinforced market expectations that the next move in U.K. interest rates is likely to be downward — though the pace and extent of easing remain highly data-dependent.