The most contentious number in the MPC meeting wasn’t the interest rate; it was the wage growth forecast. Agents reported that employers plan to raise pay by 3.5% in 2026. For you, that’s a cost-of-living adjustment. For the Bank of England, it’s a “second-round effect” of inflation.
The hawks believe that 3.5% wage growth is inconsistent with 2% inflation. You can’t have both unless productivity booms (which it isn’t). Therefore, they voted to hold rates to try and force wage demands down.
The doves voted to cut, accepting that wages might stay high for a while. They are betting that corporate profits will take the hit, rather than consumer prices. It is a gamble on the distribution of wealth.
This puts the Bank in direct conflict with workers. The Bank effectively wants your pay rise to be lower to save the economy from inflation. The TUC wants it higher to save the economy from recession.
In 2026, every pay negotiation is a battleground in this macroeconomic war. The 3.75% rate cut suggests the Bank is blinking, allowing wages to run a little hotter than they would like.