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The Bank of England is widely expected to keep its benchmark interest rate anchored at 4% when policymakers meet at 12 noon BST today. In my view, that level is unlikely to change for the rest of the year.
Markets have already concluded that August’s quarter-point trim—from 4.25% to 4%—was a single, tactical adjustment rather than the beginning of a cycle. Inflation data justify that view.
Headline consumer prices are rising at 3.8%, nearly double the Bank’s 2% target. core inflation, which excludes food and energy, has eased only slightly, while food prices continue to climb at more than 5% year-on-year. These are not numbers that give a central bank confidence to loosen policy.
The contrast with other major economies is striking. The US Federal Reserve cut rates this week, and the European Central Bank continues to hold at just 2%. Their inflation profiles have softened far more convincingly. The UK cannot safely follow its lead without risking a renewed surge in price expectations.
That means investors should plan for a “higher for longer” environment in the United Kingdom. Here is what that likely means between now and year-end.
Sterling’s Path
Relative yield now works in favour of the pound. If the Bank signals that rates will stay high while the Fed and the ECB lean toward easier policy, sterling can strengthen further against both the US dollar and the euro. Short-term volatility will remain. Each inflation print or labour-market release could jolt the currency, but the underlying bias is toward appreciation. I would not be surprised to see sterling test $1.40 against the dollar and €1.20 versus the euro by the close of 2025 if the data cooperate.
Equities and Sectors
A prolonged plateau in borrowing costs will continue to divide the equity market. Companies able to pass on costs—energy producers, utilities, and consumer staples giants—should keep drawing inflows. By contrast, highly leveraged real-estate firms and rate-sensitive growth names are likely to remain under pressure. Exporters with global revenue streams may also benefit from a stronger pound, offsetting some domestic weakness.
Bonds and Gilts
Gilts remain attractive for income seekers, with yields holding a premium over many developed-market peers. But investors must look at real, inflation-adjusted returns. If inflation proves stickier than expected, that yield advantage narrows. Those buying longer-dated paper will want to watch inflation breakevens closely.
Property Market
Both residential and commercial property will stay constrained. Mortgage rates are set to remain comparatively high well into 2026, dampening price growth and making refinancing more expensive. Select opportunities will exist—particularly in prime segments where cash buyers dominate—but broad upward momentum is unlikely.
For international investors, the lesson is that UK-denominated assets warrant a distinct strategy. Capital that left earlier in the year in anticipation of rapid rate cuts is now reconsidering. Sterling assets offer income potential and a currency with room to appreciate if the Bank maintains its stance.
The final quarter of 2025 will therefore test how accurately markets have priced a long pause in UK monetary policy.
If the Bank’s communication today confirms that it intends to keep rates unchanged well into the first quarter of 2026, sterling could climb toward the upper end of recent trading ranges, gilt yields may stay firm, and selective strength will continue in UK equities. Export-oriented companies stand to benefit from currency support, while domestic retailers and other credit-dependent businesses will face tighter conditions.
The message is straightforward: unless inflation shows an unmistakable and sustained decline, the Bank of England will not cut rates again this year.
Investors with exposure to the pound or to UK-based assets should position for a period of stable but elevated borrowing costs, a resilient currency, and a market that rewards pricing power and strong balance sheets over speculative growth.