WeeklyWatch – The Bank of England’s delicate balancing act

11^th November 2025

Stock Take

Holding the line

Hopes had been running high in the UK for a long-awaited base rate cut last week. Yet the Bank of England (BoE) chose to hold it steady at 4%, in what proved to be a close decision. Of the nine members of the Monetary Policy Committee (MPC), four voted for a reduction, while five favoured keeping rates unchanged.

While a few analysts had anticipated a cut, most believed the BoE would remain cautious. A surprise reduction could have unsettled both the pound and UK government bonds. In the end, the value of both remained largely stable following the MPC’s announcement.

With UK consumer inflation currently running at 3.8% – still well above the BoE’s 2% target – policymakers remain alert. Normally, in such a scenario, central banks prefer to keep rates higher to help temper spending and avoid fuelling inflation. Still, the narrow vote margin hints that a rate cut may well be on the cards in December.

Wages down, unemployment up

The fact that markets even entertained the idea of a rate cut ahead of this month’s Autumn Budget speaks volumes about expectations – and about leaks of a likely 2p increase in income tax for higher earners.

The BoE’s own assessment (in the statement accompanying the base rate decision) points to slowing wage growth and rising unemployment, both of which ease inflationary pressure. The BoE also believes consumer inflation (CPI) has now peaked – due to many firms having already passed on most of their recent cost increases to customers – and will therefore start easing in the months ahead.

A data-driven pause

The BoE forecasts that UK consumer inflation (CPI) will fall to 3.2% by March 2026. Yet, as ever, central bankers remain cautious. Carlota Estragues Lopez, Equity Strategist at St. James’s Place, describes the BoE’s move not to cut as “a data-driven decision based on the fact that inflation is very high. I think they want to see a bit more data before being comfortable about cutting rates further.”

She also notes that the upcoming Budget likely played a role, even if it wasn’t mentioned outright, saying:

“The upcoming Budget would have contributed to its wait-and-see mode.”

Even so, the MPC’s statement hinted that further rate reductions are likely in the near future. Greg Venizelos, Fixed Income Strategist at St. James’s Place, notes that market expectations for a December rate cut are now close to 70%. He says:

“Assuming the next set of inflation data confirms that inflation has peaked, the MPC will be in a much more comfortable position to cut rates in December. It could be needed – the Budget is likely to prove a growth dampener on the economy.”

Are tech-bubble bets premature?

It’s been a difficult week for tech investors. The Nasdaq-100 suffered its worst performance since April’s ‘Liberation Day’ tariffs, and weakness spread across Asia’s tech and AI-related stocks. Concerns over stretched valuations and potential bubbles (which could eventually lead to a major sell-off) have resurfaced, not helped by high-profile Hedge Fund Manager Michael Burry’s bets against AI shares.

But is trying to link current valuations in the technology sector to those during the dot-com era a mistake? Estragues Lopez urges perspective:

“Many of today’s tech firms are supported by really strong earnings and we are seeing that in the third quarter earnings results. If you look at valuations in the 2000s, some of these were as much as 80 times the price-to-earnings ratio. Now, many better-quality companies are trading on an equivalent ratio of 20–30 times. What is going on with AI is very much a broader shift in the markets. Yes, there are pockets of optimism reflected in some tech valuations that are extreme but these in time should normalise. Of course, technology is only a part of a well-diversified portfolio.”

US shutdown sets a new record

Across the Atlantic, the US federal government shutdown, now stretching beyond its previous record, has left up to 750,000 government workers unpaid since it began on 1^st October.

One major repercussion has been the decision to reduce flight traffic by up to 10% at 40 airports for safety reasons. Neither air traffic controllers or airport security are receiving salaries during the shutdown and some are not reporting for work. Furthermore, some government workers sent home without pay may permanently lose their jobs when the shutdown is resolved.

But the nation will be breathing a sigh of relief today, with signs the shutdown could nearly be over. The Senate passed a crucial funding bill late last night (10^th November), which would fund the government until the end of January. It passed in a 60-40 vote, with eight Democrats who splintered from the party to help get it over the line. The House of Representatives will now have to pass the bill before President Donald Trump can sign it into effect.

It’s clear that the ongoing uncertainty and disruption caused by the shutdown could take a toll on the US economy. Some analysts estimate that each additional week of closure may trim economic growth (GDP) by around 0.1%. This is adding pressure on the US central bank (the Fed), which is working to gauge the economy’s health while missing key national and regional data on employment and inflation which isn’t being gathered during the shutdown. Even so, markets currently expect a 70% likelihood of a 0.25% rate cut by the Fed next month.

Wealth Check 

A taxing time?

Speculation is mounting that Chancellor Rachel Reeves will target pension savings as part of a wide range of tax and spending measures due in the Budget. Reports suggest she may cap annual pension contributions through salary sacrifice schemes at £2,000, a sharp drop from the current allowance of up to £60,000.

Contributions made through salary sacrifice are currently exempt from National Insurance for both employees and employers. Such a move could potentially raise up to £2 billion a year, according to reports, while causing frustration for savers keen to bring down their tax liability while saving for their retirement.

This move would come alongside a likely rise in Income Tax, following Reeves’ submission of spending plans to the Office for Budget Responsibility (OBR). In doing so, she reportedly confirmed her intention to raise personal taxation – marking what could be a break from Labour’s manifesto commitments. The OBR will assess the potential impact of the measures before giving the government its view.

This all follows Reeves’ decision to give an unusual ‘pre-Budget’ speech on Tuesday of last week. In it, she declined to rule out increases in the ‘big three’ taxes – Income Tax, National Insurance and VAT – blaming the deteriorating economic backdrop.

Her stated priorities are cutting NHS waitlists, reducing the cost of living and tackling the UK’s £2.9 trillion national debt, now equivalent to roughly 95% of GDP.¹ Achieving these goals will require significant revenue – particularly as economists estimate a fiscal deficit of £20–30 billion.

Although the speculation can be unnerving, it’s always worth trying to remain calm and avoid making knee-jerk decisions.

Retirement on hold to help the next generation

In further challenges to personal retirement savings, it’s been revealed that nearly one in three parents expects to delay retirement to support their children financially. These statistics, which show that many are facing hard trade-offs between supporting the next generation and securing their own futures, come from Chapter 2 of SJP’s Real Life Advice Report 2025.

For the report, Opinium surveyed 8,000 people between 22^nd July and 5^th August 2025 to find out how their attitudes to money, financial advice and the future had changed over time. Quotas and post-weighting were applied to the sample to make the dataset representative of the UK adult population.

31% of parents said they expect to delay retirement to continue helping their children financially. Another 39% anticipate doing so even after retiring, and a quarter believe they may have to dip into their retirement savings to provide support.

In more positive news, the report also compared sentiment across parents who benefit from financial advice and those who don’t. Those receiving ongoing financial advice are twice as likely to encourage their children to have a financial plan, which could help set them up for a more secure future.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

Source:

¹Public sector finances, UK – Office for National Statistics

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

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