Bank of England Keeps Interest Rates on Hold

A Tight Decision on Rates

Yesterday, the BOE’s (Bank of England) MPC (Monetary Policy Committee) voted 5–4 in a tight decision to keep interest rates steady at 3.75%, the lowest level since February 2023. The four dissenting members all voted to cut interest rates by 25 basis points. Recent data for December 2025 has hinted at stickier inflation, which some analysts were not expecting. Consumer prices have also ticked higher, which experts say likely swayed the MPC’s decision into holding rates at this time. However, policymakers indicated after the meeting that they expect inflation to fall in the coming months, paving the way for further interest rate cuts.

The Inflation Outlook

BOE Governor Andrew Bailey said, “We now think inflation will fall to around 2% by the spring. That’s good news, and we need to make sure inflation stays there, so we’ve held rates unchanged at 3.75% today. All going well, there should be scope for some further reduction in bank rates this year.” The MPC advised that they expect inflation to fall much quicker than anticipated. They stated that this was due to Chancellor Reeves’ package of anti-inflation measures announced in her budget speech in November 2025. 

However, three months ago, gross domestic product (GDP) was estimated by the MPC to grow by 1.2% in 2026, but this estimate has now been revised downwards to 0.9%. Alongside weaker growth, officials advised that the outlook for unemployment remains bleak, peaking in Q2 at 5.3%, up 0.20% from the previous official notification. 

Labour Market and Future Expectations

Data released shows that across 2026, unemployment is circa 0.30% higher than originally advised, which experts say translates into 100,000 more people out of work. As mentioned above, inflation is expected to fall to 2.00% by spring this year, and officials advise that they expect the rate to stay at that figure until the start of 2029. Figures released showed inflation hitting 3.4% in December 2025, making it nearly impossible for the MPC to cut rates today. It was a much closer vote than expected, and financial markets are now confident of two 25 basis point cuts by this coming summer.