The Bank of England has decided to keep interest rates unchanged at 3.75% at its first policy meeting of 2026.
The decision was close. Five members of the nine-member Monetary Policy Committee (MPC) voted to hold rates steady. Four members wanted to cut the main interest rate, known as the “Bank Rate,” by 0.25 percentage points. Many economists had expected a clearer decision, with fewer members supporting a cut.
The central bank had reduced rates slightly in December. However, recent data showed stronger-than-expected economic growth and inflation remaining high at 3.4% in December. This made policymakers cautious about cutting rates again too quickly.
The Bank said its main goal is to bring inflation back to 2% and keep it there over the medium term. It added that rates are likely to fall further in the future, but the timing will depend on how inflation changes in the coming months. The Bank expects inflation to move closer to 2% from April.
Governor Signals Possible Cuts Ahead
Governor Andrew Bailey, who voted to keep rates unchanged, said he expects inflation to drop sharply in the coming months. He added that the risks of inflation staying high have reduced. Bailey said there is room for further rate cuts, but this does not mean a cut will happen at any specific meeting. Each decision will depend on the latest economic data.
What Are Economists Expecting?
Many economists believe the next rate cut could come in spring. Some expect the Bank to reduce rates at its April 30 meeting. Others believe a cut could happen in March, followed by a pause. A few analysts think there may be two rate cuts this year, possibly in April and July. There is also a chance of a third cut if the economy weakens more than expected.
Recent data suggests the UK economy is facing mild “stagflation,” meaning slow growth and high inflation at the same time.
The Bank of England is being careful. Inflation is coming down, but it is still higher than the target. Interest rate cuts are likely in 2026, but the timing will depend on how prices and the economy perform in the next few months. For now, the Bank is saying that rate cuts will happen, but not very soon.
