The Bank of England held its key interest rate at 3.75% today, a decision reached by a narrow 5-4 vote within the Monetary Policy Committee (MPC), as inflation remains above the Bank’s 2% target.
The pause comes after six consecutive rate cuts since August 2024, and despite growing expectations of a reduction in the coming months. Current inflation stands at 3.4%, according to the Bank of England, and is forecast to fall back to the 2% target later this spring, a slightly quicker pace than previously anticipated.
While the MPC opted to hold rates steady, the close vote signals a shift in sentiment, with a growing number of policymakers believing the risk of persistent inflation has diminished. Four members of the committee voted for an immediate cut, judging that the threat of inflation remaining high had “receded materially.”
The decision was influenced by recent economic data, including a slowdown in wage growth and falling global food prices, both of which are expected to contribute to easing inflationary pressures in the UK. Yesterday’s figures showed a deceleration in wage increases, a factor that, while potentially unwelcome for workers, is seen as a positive sign in the fight against rising prices.
According to the Bank of England, the current Bank Rate affects other interest rates throughout the economy, serving as a primary tool for maintaining price stability. The Bank’s governor, Andrew Bailey, stated that, “we now think that inflation will fall back to around 2 per cent by the spring. That’s good news. We demand to make sure that inflation stays there, so we’ve held rates unchanged at 3.75 per cent today. All going well, there should be scope for some further reduction in the Bank rate this year.”
However, policymakers remain cautious, balancing the risk of inflation falling below the 2% target against the potential for weaker economic growth. The MPC will continue to assess incoming data at each meeting to determine the appropriate level of interest rates needed to ensure inflation remains stable.
Markets are now anticipating a potential rate cut as early as April, a shift from previous expectations of a later reduction. Some mortgage lenders have already begun to adjust their products in response to the MPC’s vote, with experts suggesting the market may now stabilise.
The next scheduled meeting of the Monetary Policy Committee is on March 19, 2026, where the future direction of interest rates will be reassessed.
