People walk along Bank Junction next to the Bank of England in the City of London, the capital’s financial district.
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The Bank of England kept interest rates on hold at 3.75% at its first meeting of 2026 on Thursday.
The central bank’s nine-member Monetary Policy Committee (MPC) voted by a narrow 5-4 margin to keep rates on hold. Four members voted to reduce the benchmark interest rate, known as “Bank Rate,” by 25 basis points. Economists polled by Reuters had expected the vote to be a clearer cut 7-2 split.
The BOE’s policymakers last voted narrowly to cut interest rates in December, but economists had expected the central bank to hold rates steady in February, given better-than-expected monthly growth figures and persistent inflation (at 3.4% in December), in the latest data.
The BOE said that monetary policy is being set to ensure that the inflation rate “not only reaches 2% but remains sustainably at that level in the medium term, which involves balancing the risks around achieving this.”
“On the basis of the current evidence, Bank Rate is likely to be reduced further,” but it said judgments around further policy easing will become a closer call.
“The extent and timing of further easing in monetary policy will depend on the evolution of the outlook for inflation,” the statement said.
What’s next?
Now, all eyes are on the timing and pace of expected rate cuts this year. Here’s what economists expect:
“The early data covering 2026 hint at stronger demand and stickier inflation than we had expected. In time, fiscal tightening and decelerating pay growth will snuff out excess price pressures, but not as soon as we anticipated before,” Andrew Wishart, senior U.K. economist at Berenberg, said in emailed comments.
Berenberg has pushed back the three 25 basis-point reductions it expects the BOE to make to its key rate in 2026 to begin in the second quarter; “We now expect the next move at the 30 April meeting,” Wishart noted.
The BOE’s last rate cut in December came against a backdrop of lackluster growth, softening labor market data and a decline in inflation but the rate of consumer price rises have since ticked higher, giving the bank pause for thought.
Edward Allenby, senior U.K. economist at Oxford Economics, agreed that while the BOE is expected to stand pat on rates in February, more rate cuts are coming.
“The current bout of mild stagflation is likely to keep the committee divided on the timing of these future cuts, encouraging a gradual approach to loosening policy further,” he noted in emailed analysis.
“We see the end-April meeting as the most likely timing for the next cut,” Allenby said.
“By then, the MPC should have a clearer view of the pay awards and whether this is further evidence of slack emerging in the economy,” he said.
Dani Stoilova, U.K. and Europe economist at BNP Paribas Markets 360, believes the first rate cut of 2026 could come earlier than April, but could be a standalone trim.
“We continue to expect the next rate cut in March. After that, we think the BOE will deliver a prolonged pause before resuming policy normalisation in early 2027 (we see a terminal rate of 3.00% by mid-2027),” she said in emailed comments.
