Bank of England holds interest rates at 3.75% and reduces growth forecast
The Bank of England’s Monetary Policy Committee (MPC) has decided to keep interest rates on hold at 3.75%, indicating a likely reduction in the near future as inflation is expected to ease, reports BritPanorama.
The decision was reached following a narrow vote of 5–4 among committee members. Four members advocated for a decrease of 0.25 percentage points to 3.5%. In addition to maintaining the interest rate, the Bank has revised its economic growth forecasts for the UK, lowering the expectations for 2026 from 1.2% to 0.9% and for 2027 from 1.6% to 1.5%.
Despite the current rate of Consumer Prices Index (CPI) inflation exceeding the target of 2%, the Bank predicts a return to this target around April due to recent trends in energy prices, including adjustments outlined in the Budget 2025. The Bank noted that while easing trends are observed in the labour market, wage growth, and service price inflation, there are still risks stemming from weakening demand and a relaxed labour market.
The MPC has stated, “On the basis of the current evidence, the Bank Rate is likely to be reduced further.” However, decisions regarding any additional policy easing will consider developments in the inflation outlook. Governor Andrew Bailey expressed optimism about a significant decline in inflation in the coming months, although the timing and extent of its impact on wage settlements remains uncertain.
Previously, a rate cut had been implemented just before Christmas, reducing the rate from 4% to 3.75%. This marked the fourth reduction of that year, with Bailey confirming that while inflation has reportedly peaked, future cuts would require careful deliberation. Recent data indicated a slight rebound in inflation during December, climbing to 3.4% from 3.2% in November, attributed to increases in tobacco duties and airfare prices.
In related economic news, signals suggest that Britain’s construction sector may be recovering, despite ongoing challenges for housebuilding. The S&P Global UK construction purchasing managers’ index (PMI) recorded a January reading of 46.4, up from a five-and-a-half-year low of 40.1 in December, although it remains below the 50 mark, indicating continued contraction in the sector.
Editorial Note: The Bank of England’s decision reflects a nuanced response to shifting economic indicators. With inflation anticipated to temper, the central bank’s approach balances immediate economic pressures against long-term financial stability. Such judicious interpretation of data reinforces the crucial role of informed monetary policy in times of uncertainty.
