Bank Of England Expected to Hold Rates Steady As Economy Sends Mixed Signs

TLDR

Table of Contents

BOE is expected to vote 7–2 in favor of holding rates at 3.75% on Thursday.
UK jobless rate rose to 5.1% in November, the highest level since early 2021.
Inflation eased to 3.4% in December but remains above the 2% target.
PMI rose to 53.9 in January, showing improved business activity after the Budget.

The Bank of England is widely expected to keep interest rates unchanged at 3.75% in its upcoming February policy meeting. Investors and analysts are focused on how the central bank will guide expectations for rate changes in the coming months as mixed signals emerge from the UK economy.

Policy Decision Expected Amid Rate Cut Talks

The Bank of England’s Monetary Policy Committee is forecasted to keep the benchmark interest rate at 3.75% this Thursday. Data from LSEG places the probability of a hold at 97%. Patrick Munnelly from Tickmill Group said a 7–2 vote is likely, with two members supporting a 25-basis point cut.

The central bank last lowered the rate by 0.25% points in December. That move followed signs of easing inflation. However, policymakers noted that future decisions would be more balanced. Thursday’s announcement is expected to reinforce that message while keeping options open for further cuts in 2024.

Inflation Slows but Remains Above Target

Consumer price inflation fell to 3.4% in December, down from a peak of 3.8% in summer 2025. Though this marks progress, inflation is still above the Bank’s 2% target. Policymakers are monitoring underlying price pressures, particularly wage growth in the private sector.

Wage growth excluding bonuses slowed to 3.6% in the three months to November from 3.9% previously. Surveys by the Bank show expected pay increases of around 3.7% in 2026, which could slow inflation but still remain higher than desired.

Job Market Weakens Despite GDP Growth

The labour market has shown signs of stress, with the unemployment rate reaching 5.1% in November—the highest since early 2021. According to the Office for National Statistics, payrolled employment dropped by 155,000 year-on-year in November. The redundancy rate also rose to 4.9 per thousand workers from 3.8.

While employment indicators have worsened, the broader economy displayed some resilience. GDP expanded by 0.3% in November. The S&P PMI index also improved to 53.9 in January, reflecting increased business activity after the Autumn Budget. These conflicting signals are central to the MPC’s current policy debates.

Further Rate Cuts Remain a Possibility

Although another rate cut this week appears unlikely, economists expect the Bank to signal that easing may continue later this year. Budget measures such as rail fare freezes and delayed fuel tax hikes are expected to support inflation forecasts. These may show inflation reaching or falling below target over the medium term.

Andrew Bailey, the Bank’s Governor, has previously said that interest rates could return closer to 2% by spring. However, some analysts warn that cutting rates too quickly could weaken efforts to control inflation if economic activity strengthens.

Rob Wood of Pantheon Macroeconomics stated, “We expect the MPC to reiterate its previous guidance that another Bank Rate cut is likely but the rate cycle is probably close to an end.” With the next policy meeting scheduled for March, market watchers will focus on updated forecasts and comments from Bank officials following this week’s rate decision.