UK Q4 2025 Outlook

BoE caught between inflation and slowing growth

In 2025, the Bank of England has emerged as one of the most active central banks in supporting the economy. It has cut interest rates three times this year, lowering the benchmark to 4.00%. Yet headwinds persist, particularly in the labour market, where the gap between supply and demand remains wide.

Inflation pressures likely to persist

UK inflation is holding near its highest level since January 2024, reaching 3.8% year-on-year in August 2025, well above the bank’s 2% target. Analysts expect it to edge a little higher by year-end before gradually easing. These persistent pressures are mainly related to the expectation of new tax increases and higher food and energy prices.

If the government proceeds with another round of tax increases in the November Budget, it could drive consumer prices higher, reduce household spending power and slow income growth. This would weaken economic expansion, the exact opposite of what the Bank of England has been trying to achieve with its rate cuts.

What to expect in Q4 2025

Looking ahead, the Bank of England is expected to keep policy unchanged for the rest of the year.

With inflation still elevated and global pressures feeding into domestic prices, the bank is likely to hold back from further cuts for now. Easing too soon, even with weaker growth, risks fuelling another round of inflation that could be harder to contain later.

Policymakers are therefore likely to wait and watch. The exception would be if clear signs emerge that inflation is cooling again. In that case, another cut in the fourth quarter would be possible, particularly if labour market weakness deepens.