The Bank of England held its key interest rate at 3.75%. This decision came on Thursday, February 5, 2026. The Monetary Policy Committee (MPC) voted 5-4 to maintain the rate. This narrow split shows internal division. It signals a delicate balance for policymakers. The bank aims to control inflation. However, it also eyes a cooling economy.
Rate Decision Details
The Bank Rate remains at 3.75%. This is a widely expected outcome. Yet, the vote was surprisingly close. Four members advocated for a 25 basis point cut. This indicates differing views on the economic path. Governor Andrew Bailey voted to hold rates. He noted inflation is falling. However, he stressed the need for certainty. Inflation must stay near the 2% target. The bank has cut rates multiple times since August 2024. This latest hold follows those reductions.
Inflation Outlook and Budget Impact
Inflation is projected to reach the 2% target. This is expected by April 2026. Falling energy prices will help this decline. The effects of the Budget 2025 also play a role. Inflation was 3.4% in December 2025. This was up from 3.2% in the prior month. The Bank’s target is 2%. This level was last seen in June 2024. Keeping rates higher helps temper price rises. High borrowing costs reduce spending. This makes price increases less likely.
Economic Landscape and Risks
The United Kingdom economy shows signs of strain. Recent data points to moderate growth. However, growth forecasts are being revised down. The GDP growth forecast for 2026 is now 0.9%. This is a decrease from 1.2% previously. Unemployment is expected to rise. Estimates suggest it could reach 5.3%. Pay growth is moderating. Service price inflation is also easing. The labor market is loosening. This presents downside risks. Policymakers see diminishing risks of persistent inflation. However, weaker demand remains a concern.
Future Policy and Market Reaction
The close 5-4 vote suggests future decisions will be tough calls. Markets are pricing in further rate cuts. Many expect cuts to begin soon, perhaps in March. Governor Bailey indicated future easing is likely. However, he stressed it will be a closer judgment call. The Bank watches incoming data closely. Decisions depend on inflation trends and labor market signals.
Business and Financial News
This news impacts the United Kingdom’s business environment. The central bank’s cautious stance reflects current conditions. Financial markets will closely monitor upcoming economic reports. These will guide the Bank’s next move. The trending narrative is one of watchful waiting. Stability remains the primary goal for the UK economy. This careful approach to monetary policy continues.
