The Bank of England is widely expected to keep interest rates on hold this week after inflation rose for the first time in five months, although markets believe the door remains open to a cut later in the spring.
Analysts expect the Bank’s Monetary Policy Committee (MPC) to vote to maintain the base rate at 3.75 per cent when it announces its decision on Thursday. The rate is already at a three-year low following four quarter-point cuts last year, which brought borrowing costs down from 5.25 per cent since July 2024.
The expected pause follows data showing inflation climbed to 3.4 per cent in December, moving further above the Bank’s 2 per cent target. While policymakers have signalled that rates are on a downward path, the latest inflation reading has strengthened the case for caution in the near term.
Markets are still pricing in two rate cuts this year, with the first potentially coming as early as March. Economists view February’s meeting as a brief pause rather than the end of the easing cycle.
The nine-member MPC has been closely divided in recent meetings, reflecting differing views over whether inflation is set to fall back quickly or remain stubbornly high. In December, the committee voted 5–4 in favour of a cut, with governor Andrew Bailey casting the deciding vote.
Analysts at UBS said they expect Bailey to back a hold this time. “After swinging the vote in favour of a cut in December, it is likely governor Bailey will vote for keeping rates on hold,” the bank said.
Meanwhile, economists at Morgan Stanley said labour market data could prove decisive for the next move. “We would expect Bailey to focus more on incoming jobs data, where we see a further uptick in unemployment. This could ultimately lead to a March cut,” they said.
EY Item Club also expects no change this week, describing a hold at 3.75 per cent as a “near-certainty”. The forecaster said the MPC is likely to signal that while another cut is possible, the rate-cutting cycle may be approaching its end.
The central bank will publish updated economic forecasts alongside Thursday’s decision, setting out its latest expectations for growth, inflation and unemployment. Bailey is also likely to face questions about recent volatility in global financial markets, driven in part by erratic tariff announcements and geopolitical tensions linked to Donald Trump.
In December, Bailey said he expected inflation to return to, or close to, the 2 per cent target by April. Price growth is forecast to ease as household bills fall following measures announced by Rachel Reeves, including the removal of some green levies and a freeze on rail fares.
For now, economists believe the Bank will opt for patience, balancing early signs of cooling inflation against lingering price pressures and uncertainty in the global economy.
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Bank of England set to hold rates as inflation rise cools cut expectations