London Daily

Focus on the big picture.
Friday, Oct 03, 2025

It's clear the Bank of England thinks we are at - or near to - a peak in interest rates

It's clear the Bank of England thinks we are at - or near to - a peak in interest rates

Alongside its interest rate decision today - another half percentage point increase which takes the cost of borrowing to 4% - the Bank of England introduced some subtle shifts in its language.
Back in the Soviet era, analysts would spend hours trying to read between the lines of the speeches and comments coming out of the Kremlin.

Was there a hint buried in this or that paragraph about nuclear policy and the path of the Cold War?

Today, economists do much the same thing with the noises coming out of the world's central banks.

The men and women who run monetary policy and decide our interest rates tend to talk in convoluted sentences. But spend enough time analysing those words and this modern form of Kremlinology can pay dividends.

Today is one of those days, because if you read between the lines of the latest pronouncements from the Bank of England, it's clear that we are reaching (or might have already reached) the peak for UK interest rates. About time too, you might say.

Alongside its interest rate decision today - another half percentage point increase which takes the cost of borrowing to 4% - the Bank introduced some subtle shifts in its language.

Words like "forcefully" have been removed from the part of the minutes talking about future rate increases. Future tenses have been replaced with conditional tenses.

We've never seen quite such a rapid rise of borrowing costs in this country - and note that while 4% might seem low in comparison to previous eras (it was in the double digits in much of the 1970s and 1980s) the impact on households is severe.

Today's mortgage holders are significantly more burdened with debt than their parents and grandparents.

And rates are, alongside inflation, higher energy costs, a diminishing workforce and the economic friction of Brexit, part of the explanation for why the economic outlook remains so lacklustre.

Significantly less miserable than last time

The Bank's forecasts today are significantly less miserable than they were last time it looked at the economy, thanks in large part to the fact that wholesale energy prices have dropped sharply.

While the Bank still expects a technical recession (in other words, two or more successive quarterly falls in gross domestic product), this would be the shallowest recession in modern history. Better to think of it as a flatlining economy.

But flatlining is not especially good either. And the real concern from the Bank's forecast is that Britain is projected to flatline for a long time to come.

By 2026, the Bank reckons total national income may still be below where it was in 2019.

Clearly this is not good news. And while many other countries around the world are facing similar challenges to the UK - in particular higher prices - one of the great conundrums is why the UK seems to be, if not an outlier, then particularly badly affected.

Is it Brexit? Is it that our economy was particularly badly scarred by COVID? Is it the fact that we are especially sensitive to higher energy costs?

The short answer is probably all of the above. But there are no simple answers here.

The Bank's forecast today does not provide any fresh answers; but nor does it provide any fresh reassurance.
Newsletter

Related Articles

0:00
0:00
Close
Trump Administration Launches “TrumpRx” Plan to Enable Direct Drug Sales at Deep Discounts
Trump Announces Intention to Impose 100 Percent Tariff on Foreign-Made Films
Altman Says GPT-5 Already Outpaces Him, Warns AI Could Automate 40% of Work
Singapore and Hong Kong Vie to Dominate Asia’s Rising Gold Trade
Trump Organization Teams with Saudi Developer on $1 Billion Trump Plaza in Jeddah
Manhattan Sees Surge in Office-to-Housing Conversions, Highest Since 2008
Switzerland and U.S. Issue Joint Assurance Against Currency Manipulation
Electronic Arts to Be Taken Private in Historic $55 Billion Buyout
Thomas Jacob Sanford Named as Suspect in Deadly Michigan Church Shooting and Arson
Russian Research Vessel 'Yantar' Tracked Mapping Europe’s Subsea Cables, Raising Security Alarms
New York Man Arrested After On-Air Confession to 2017 Parents’ Murders
U.S. Defense Chief Orders Sudden Summit of Hundreds of Generals and Admirals
Global Cruise Industry Posts Dramatic Comeback with 34.6 Million Passengers in 2024
Trump Claims FBI Planted 274 Agents at Capitol Riot, Citing Unverified Reports
India: Internet Suspended in Bareilly Amid Communal Clashes Between Muslims and Hindus
Supreme Court Extends Freeze on Nearly $5 Billion in U.S. Foreign Aid at Trump’s Request
Archaeologists Recover Statues and Temples from 2,000-Year-Old Sunken City off Alexandria
China Deploys 2,000 Workers to Spain to Build Major EV Battery Factory, Raising European Dependence
Speed Takes Over: How Drive-Through Coffee Chains Are Rewriting U.S. Coffee Culture
U.S. Demands Brussels Scrutinize Digital Rules to Prevent Bias Against American Tech
Ringo Starr Champions Enduring Beatles Legacy While Debuting Las Vegas Art Show
Private Equity’s Fundraising Surge Triggers Concern of European Market Shake-Out
Colombian President Petro Vows to Mobilize Volunteers for Gaza and Joins List of Fighters
FBI Removes Agents Who Kneeled at 2020 Protest, Citing Breach of Professional Conduct
Trump Alleges ‘Triple Sabotage’ at United Nations After Escalator and Teleprompter Failures
Shock in France: 5 Years in Prison for Former President Nicolas Sarkozy
Tokyo’s Jimbōchō Named World’s Coolest Neighbourhood for 2025
European Officials Fear Trump May Shift Blame for Ukraine War onto EU
BNP Paribas Abandons Ban on 'Controversial Weapons' Financing Amid Europe’s Defence Push
Typhoon Ragasa Leaves Trail of Destruction Across East Asia Before Making Landfall in China
The Personality Rights Challenge in India’s AI Era
Big Banks Rebuild in Hong Kong as Deal Volume Surges
Italy Considers Freezing Retirement Age at 67 to Avert Scheduled Hike
Italian City to Impose Tax on Visiting Dogs Starting in 2026
Arnault Denounces Proposed Wealth Tax as Threat to French Economy
Study Finds No Safe Level of Alcohol for Dementia Risk
Denmark Investigates Drone Incursion, Does Not Rule Out Russian Involvement
Lilly CEO Warns UK Is ‘Worst Country in Europe’ for Drug Prices, Pulls Back Investment
Nigel Farage Emerges as Central Force in British Politics with Reform UK Surge
Disney Reinstates ‘Jimmy Kimmel Live!’ after Six-Day Suspension over Charlie Kirk Comments
U.S. Prosecutors Move to Break Up Google’s Advertising Monopoly
Nvidia Pledges Up to $100 Billion Investment in OpenAI to Power Massive AI Data Center Build-Out
U.S. Signals ‘Large and Forceful’ Support for Argentina Amid Market Turmoil
Nvidia and Abu Dhabi’s TII Launch First AI-&-Robotics Lab in the Middle East
Vietnam Faces Up to $25 Billion Export Loss as U.S. Tariffs Bite
Europe Signals Stronger Support for Taiwan at Major Taipei Defence Show
Indonesia Court Upholds Military Law Amid Concerns Over Expanded Civilian Role
Larry Ellison, Michael Dell and Rupert Murdoch Join Trump-Backed Bid to Take Over TikTok
Trump and Musk Reunite Publicly for First Time Since Fallout at Kirk Memorial
Vietnam Closes 86 Million Untouched Bank Accounts Over Biometric ID Rules
×