Weekly Briefing: The Bank of England Holds, Productivity Falters, Debt Mounts Higher, and Investors Seek Stability

In this week’s briefing, the focus turns to the balancing act between policy restraint and economic reality.

The Bank of England has paused its rate-cutting streak, but a December move now looks likely, as Governor Andrew Bailey weighs easing inflation against sluggish growth. Meanwhile, fresh ONS data show productivity falling again, tightening the fiscal bind for Rachel Reeves just weeks before her first Budget. That challenge is deepened by new warnings over Britain’s spiralling debt, with economists fearing a “doom loop” of higher taxes and weaker growth.

Amid this uncertainty, investors are seeking stability elsewhere - and BlackRock’s latest global fund aims to offer exactly that, promising steadier returns beyond volatile government bond markets.

Read on for the full story.

The Bank Holds Fire but a December Cut Looks Likely

The Bank of England held interest rates steady at 4% in what was a ‘knife-edge’ decision, narrowly voting 5–4 against a further cut. After five consecutive rate reductions this year, the Committee said inflation had likely peaked and hinted that rates could start moving “on a gradual downwards path” if wage growth and prices continue to ease. 

Governor Andrew Bailey sided with the majority in holding rates for now but admitted he could shift towards a cut as early as December, depending on new data and the fiscal tone set in Rachel Reeves’ upcoming Budget.

Market expectations seem to align with Bailey’s outlook. Traders are currently pricing in a 70% chance of a quarter-point cut at next month’s meeting, while Bailey said expectations of rates levelling off near 3.5% next year were a “fair description” of his view. Inflation, which stood at 3.8% in September, is forecast to fall close to 3% early next year and return to the 2% target by late 2027. GDP growth, meanwhile, is expected to cool from 1.5% this year to 1.2% in 2026 before recovering in subsequent years.

The vote split underlines a growing divergence within the MPC, with four members arguing that the risks now lean towards weaker growth and potential undershooting of the inflation target, citing stagnant jobs growth and cautious consumer spending. Bailey and others remain more cautious, wary that wage pressures could still keep prices elevated if the Bank moves too soon.

So, for now, the decision keeps the focus firmly on fiscal policy. Reeves’s budget on November 26 will likely shape the economic tone heading into 2026. As Bailey told reporters: “Rather than cutting Bank Rate now, I would prefer to wait and see if the durability in disinflation is confirmed in upcoming economic developments this year.”

Productivity Pain Adds Pressure on Reeves

As the Bank weighs its next move, fresh data from the Office for National Statistics has dealt a blow to Chancellor Rachel Reeves. Productivity across public services fell 0.7% in the year to June, with healthcare output dropping 1.5% despite rising funding and wage settlements. The ONS said inputs – mainly spending – were up 2.5% year-on-year, while outputs rose just 1.8%, producing the sharpest decline in total public service productivity since late 2022.

The picture looks particularly bleak for the NHS, where productivity remains 7.8% below pre-pandemic levels. Although Labour has pointed to NHS England figures showing a 2.4% productivity rise in the first months of this financial year, the ONS data suggests that the overall balance between funding and output has worsened since Labour took office.

With productivity still around 3% below 2019 levels, the OBR is expected to downgrade its broader productivity forecasts later this month – potentially adding £21 billion to the fiscal gap Reeves must close.

In practical terms, this means the Chancellor faces a difficult balancing act. She has already hinted at tax rises to fund the NHS and other struggling services, but a weaker productivity backdrop reduces her room for manoeuvre without hitting growth. This tension may well influence the Bank of England’s next rate decision discussed earlier, as any fiscal tightening will weigh on consumer demand and inflation expectations.

Health Secretary Wes Streeting defended the government’s progress, claiming their reforms were “turning a corner.” As he put it: “We’ve sent in crack teams of top clinicians across the country, opened up more services at evenings and weekends, and slashed agency spending by almost a third. It’s leading to more patients treated and less taxpayer money wasted.”

Britain’s Debt Spiral and the Threat of a Fiscal “Doom Loop”

The growing fiscal strain facing Reeves is underscored by new analysis from Oxford Economics showing that UK national debt has tripled since 2005 – the fastest increase among major economies. Public debt now stands at £2.9 trillion, nearly equal to the size of the economy, and interest payments exceed £100 billion annually. The UK’s debt trajectory has outpaced even that of the US and Spain, while countries like Germany and the Netherlands have managed to reduce their debt ratios over the same period.

Economists warn that the UK could be edging towards a fiscal “doom loop” – a cycle where high debt and low growth force governments to raise taxes, further slowing the economy and deepening the problem. This has left Britain with borrowing costs higher than many peers, despite having a smaller overall debt burden. Yields on long-term government bonds briefly hit their highest level in 27 years this autumn, reflecting investors’ growing concerns over the country’s fiscal credibility.

City analysts expect Reeves’ upcoming Budget to be a defining moment. If she opts for another large-scale tax rise without addressing spending, it risks undermining confidence in the UK’s fiscal framework – something economists say has already “clearly failed” to control debt. As one economist warned, the system “has not been placed on a sustainable path.”

Matthew Beesley of Jupiter Fund Management captured the mood among investors: “The key thing is to be bold. If there’s just enough cuts or just enough tax rises to just about balance books then this debate will just resurface and the Government will remain in hock to the bond market.”

BlackRock Eyes Stability Amid the Global Securitised Market

Against this backdrop of policy uncertainty, BlackRock’s latest global securitised fund launch offers investors something the broader economy lacks – diversification and resilience. The fund will invest across a range of investment-grade securitised assets, including residential mortgage securities, commercial mortgage-backed securities, and asset-backed securities, spanning markets in the US, Europe, the UK, and Australia.

The strategy is built around balance. By spreading exposure across regions and asset types, the fund aims to deliver low correlation to traditional fixed income and steadier risk-adjusted returns. This global focus reflects a broader shift among institutional investors seeking income stability without over-reliance on government bonds – a logical move given the fiscal and rate uncertainty outlined in previous sections.

While the fund’s details are technical, its timing feels deliberate. With global markets still recalibrating after a volatile rate cycle, BlackRock’s offering speaks to a growing appetite for diversified, income-focused investments that can weather both inflation and fiscal tightening.

In essence, the firm is positioning the fund as a haven for those looking beyond sovereign debt markets. As BlackRock put it, the approach “aims to reduce reliance on any single securitised sector or region, while offering low correlation to traditional fixed income... with a focus on high quality resilient income for investors.”

Final Note

This week pulls into focus a simple truth: policy is at a crossroads, and the margin for error is slim. The Bank’s hold with a clear chance of a December cut leaves markets and investors watching budget choices rather than interest-rate fireworks. At the same time, weak public-sector productivity and a rapidly rising debt burden tighten the Chancellor’s room to manoeuvre, making any Budget choices on November 26 far more consequential than usual.

For investors, that means a few practical moves. First, beware relying on gilts alone for income-fiscal strain, and volatility push investors toward diversified, income-focused strategies. Second, favour quality and diversification across sectors and geographies; the appeal of securitised and asset-backed income strategies is obvious in this environment. Third, tax efficiency. It’s undeniable the direction we're headed, so looking at minimising tax burden whilst also looking for growth in quality investments is another key. 

Rates may come down, but the economic hand the Government plays will determine whether that easing turns into a sustained recovery or another bout of headaches.