Analysis of: Why the Bank of England is holding rates despite a weakening economy
The Guardian | February 5, 2026
TL;DR
The Bank of England holds rates at 3.75% despite falling inflation and rising unemployment, prioritizing inflation fears over worker relief. Central bank 'independence' means working people wait while capital's interests are protected.
Analytical Focus:Class Analysis Material Conditions Contradictions
The Bank of England's decision to hold interest rates at 3.75% despite mounting evidence of economic weakness reveals the class character of monetary policy in capitalist economies. While inflation falls toward target, unemployment rises to 5.1%, and economic growth forecasts are slashed, the central bank majority chose caution—a caution that disproportionately burdens working-class households struggling with mortgage costs and businesses needing credit to invest. Governor Andrew Bailey's casting vote in the narrow 5-4 split demonstrates how individual actors within state institutions wield enormous power over material conditions affecting millions. The article's framing is instructive: it presents the decision as a technical judgment about economic indicators rather than a political choice with clear class beneficiaries. Yet the material stakes are explicit—households need to remortgage 'to keep a roof over their head,' while businesses need loans 'to invest in new equipment.' The Bank's own analysis admits that previous concerns about workers having 'permanently improved power to demand higher wages' were overblown, yet this acknowledgment doesn't translate into relief for those same workers. The ideological mechanism at work naturalizes central bank 'independence' as neutral expertise rather than a structural arrangement that insulates monetary policy from democratic accountability. The dissent from Professor Alan Taylor—noting that economic weakening has been 'obvious for at least a year'—exposes internal contradictions within bourgeois economic management. Even within the framework of capitalist stability, the majority position appears to prioritize phantom inflation risks over concrete economic distress. This tension between different fractions of capital (finance versus productive industry) and their varying interests in monetary policy demonstrates that the capitalist class is not monolithic, though working people consistently bear the costs of these internal debates.
Class Dynamics
Actors: Central bank officials (MPC members), Working-class households (mortgage holders, renters), Small and medium businesses, Financial capital (banks, lenders), Chancellor Rachel Reeves (state actor), Professor Alan Taylor (dissenting expert)
Beneficiaries: Financial institutions earning higher returns on lending, Holders of existing capital and assets, Creditors over debtors
Harmed Parties: Mortgage holders facing continued high payments, Workers facing unemployment (5.1% and rising), Businesses unable to access affordable credit for investment, Renters affected by constrained housing investment
The Bank of England's 'independence' concentrates monetary policy power in an unelected nine-person committee, insulated from democratic pressure. Governor Bailey's casting vote in a 5-4 split means one individual effectively determined the material conditions for millions. The framing of worker wage power as a 'structural shift' threat—now abandoned—reveals how labor's interests are treated as problems to be managed rather than legitimate claims.
Material Conditions
Economic Factors: Interest rate at 3.75%, Inflation at 3.4% (falling toward 2% target), Unemployment at 5.1% rising to projected 5.3%, GDP growth forecast cut from 1.2% to 0.9%, Declining housing investment, Falling exports, Wage growth moderating to 3.25%
The article reveals how monetary policy mediates the fundamental tension between labor and capital. Higher interest rates function as a disciplinary mechanism: they constrain wage growth by maintaining unemployment pressure, while protecting the value of financial assets and returns on capital. The Bank's abandonment of concerns about worker bargaining power coincides with confirmation that wages are indeed moderating—the policy achieved its class function.
Resources at Stake: Housing (mortgages, investment), Business credit for productive investment, Workers' wages and employment security, Returns on financial capital
Historical Context
Precedents: Volcker shock of 1979-82 (using interest rates to break labor power), Post-2008 central bank independence as crisis management tool, Austerity policies following 2010 in UK, Historical pattern of inflation targeting prioritizing price stability over full employment
This decision fits the neoliberal pattern of central bank 'independence'—a post-1970s arrangement that removes monetary policy from democratic contestation. The framework privileges price stability (protecting creditor interests) over full employment (protecting worker interests). The article notes UK inflation falling 'into line with France, Germany and the EU average,' reflecting coordinated monetary tightening across advanced capitalist economies that systematically prioritizes capital preservation over labor welfare.
Contradictions
Primary: The contradiction between the Bank's mandate to support economic stability and its actual policy of maintaining restrictive conditions despite clear evidence of economic weakness and falling inflation—revealing that 'stability' means stability for capital, not for working people.
Secondary: Internal MPC split (5-4) exposing disagreement within bourgeois economic management about optimal capital accumulation strategy, Contradiction between acknowledging workers lack structural wage power while still citing inflation fears, Tension between productive capital (needing cheap credit) and financial capital (benefiting from higher rates), Government fiscal policy (Reeves cutting energy bills) working against central bank monetary tightening
The article suggests a rate cut in March is 'almost certain,' indicating the contradiction is conjunctural rather than structural—the Bank will eventually ease as inflation falls. However, the deeper structural contradiction between democratic accountability and central bank independence remains unresolved. Working people have no mechanism to contest these decisions except through the mediated, delayed process of electoral politics affecting fiscal policy.
Global Interconnections
The Bank of England's decision reflects a coordinated tightening cycle across advanced capitalist economies, with the article explicitly comparing UK inflation to France, Germany, and the EU average. This synchronization demonstrates how monetary policy operates as a transnational class project, disciplining labor across borders simultaneously. The UK's position as a financialized economy with a globally significant currency means the Bank's decisions ripple through international capital flows, while also being constrained by competitive pressures from other central banks. The mention of falling exports and reduced housing investment points to deeper structural weaknesses in British capitalism—deindustrialization, over-reliance on financial services, and a housing market that functions more as an asset class than shelter provision. These are not technical problems solvable through interest rate adjustments but contradictions rooted in decades of neoliberal restructuring that monetary policy can only manage, not resolve.
Conclusion
This episode illuminates how central bank 'independence' functions as a mechanism for insulating class-interested monetary policy from democratic contestation. The narrow 5-4 vote and impending reversal in March suggest tactical disagreements within capital about optimal accumulation strategy, not fundamental challenges to the framework. For working people, the lesson is that their material conditions—mortgage payments, job security, access to housing—are determined by unelected officials explicitly weighing 'inflation fears' against their welfare, with inflation fears consistently winning. Building class consciousness around monetary policy's class character, and demanding democratic accountability for central banks, represents an underexplored terrain for labor organizing and political struggle.
Suggested Reading
- Wage Labour and Capital by Karl Marx (1849) Marx's analysis of how wages, prices, and capital interact illuminates why central bank policy systematically prioritizes inflation control over employment—protecting capital's share against labor's claims.
- The State and Revolution by V.I. Lenin (1917) Lenin's analysis of the capitalist state as an instrument of class rule helps explain why 'independent' central banks systematically serve capital's interests while appearing as neutral technical institutions.
- The Shock Doctrine by Naomi Klein (2007) Klein's documentation of how economic crises are used to discipline labor and restructure economies in capital's favor provides contemporary context for understanding monetary policy as class warfare.