Bank of England officials split over November cut as inflation sticks at 3.1%

Inflation held at 3.1% in September, the Office for National Statistics said on Wednesday, a figure that has sharpened a split inside the Bank of England over whether to cut interest rates next month or hold them for a fourth consecutive meeting.

The headline rate was unchanged on August and slightly above the 3.0% that City economists had expected. Food prices rose 4.0% over the year, the fastest pace since early 2024, driven by beef, chocolate and coffee, while the cost of services, which the Bank watches most closely, slowed to 4.2% from 4.5%. Core inflation, which strips out energy and food, eased to 3.4%.

Two officials familiar with the monetary policy committee’s deliberations said the data had done little to settle the argument. One described the services figure as “the first genuinely encouraging number in a while” and said a quarter-point cut from 4% at the 6 November meeting was “more likely than not”. Another cautioned that pay settlements in the private sector were still running at 4.1% and that the committee had “been burned before by declaring victory on a single print”.

Markets are pricing a roughly 70% chance of a cut to 3.75% next month, with sterling slipping a third of a cent against the dollar after the release. Dr Priya Raman, chief UK economist at Caldwell Markets, said the committee was “fighting about the shape of the next six months, not the direction”. “Services inflation is coming down, the labour market is loosening, and the question is whether you move now or wait for the November forecast round to give you cover,” she said.

The food figure is the most politically awkward element. The British Retail Consortium said rising wholesale costs, higher employer national insurance and a wet summer that hit domestic vegetable yields had all fed through to shelves. A Treasury spokesperson said the government “understood the pressure on household budgets” and pointed to the fall in services inflation as evidence that “the plan is working”.

Marcus Hale, head of rates at Beaumont Asset Management in Edinburgh, said the Bank risked being “too cautious for too long”. He said: “Unemployment is at 4.9% and rising, vacancies are back to pre-pandemic levels and the economy grew 0.1% in the summer quarter. If you wait until inflation is at target to move, you have waited too long.”

Others on the committee are understood to be concerned about the inflation expectations of households, which the Bank’s own survey put at 3.6% for the year ahead in its most recent reading. One official said the committee had “no appetite for a cut followed by a reversal”.

The monetary policy committee will see one more set of labour market figures, due on 21 October, before it meets. Whatever it decides, the Bank’s forecasts suggest inflation will not return to its 2% target until the second half of 2027.