Bank Rate held at 3.75% with split vote and easing signals
The Bank of England's Monetary Policy Committee voted by a majority of 5-4 to maintain Bank Rate at 3.75 percent. Four members preferred a 25 basis point reduction, while the Committee indicated further easing is likely.
Divergent views on easing path
The Monetary Policy Committee voted by a majority of 5–4 to maintain Bank Rate at 3.75 percent at its meeting ending on 4 February 2026. Four members preferred a 25 basis point reduction to 3.5 percent.
CPI inflation, currently above the 2 percent target, is expected to fall back to around target from April, primarily due to energy price developments.
Pay growth and services price inflation have generally continued to ease, reflecting monetary policy's impact, subdued economic growth, and building slack in the labour market.
The risk from greater inflation persistence has become less pronounced, though some risks from weaker demand and a loosening labour market persist.
Monetary policy aims for sustainable 2 percent inflation in the medium term.
Bank Rate has been reduced by 150 basis points since August 2024, and further reductions are likely.
However, the timing and extent of future easing will depend on the evolving inflation outlook, making upcoming decisions a closer call.
Balancing inflation persistence and demand risks
The Committee's discussions centered on the near-term inflation outlook and economic slack.
CPI inflation fell from 3.8 percent in September to 3.4 percent in December.
Members held divergent views on whether the headline inflation reduction, largely from one-off factors, would sufficiently curb persistent underlying pressures.
Some emphasized slowing pay settlements and potential for normalising wage and price-setting.
Others worried about elevated inflation expectations and future wage indicators, suggesting more restrictive policy might be needed.
The labour market continued to loosen, with unemployment at just over 5 percent.
Downside risks to the economic outlook could widen the output gap, potentially leading to an inflation undershoot without looser monetary policy.
Easing is likely, but not yet unanimous
The split vote highlights the MPC's internal debate on the pace of monetary easing, despite clear signals of future rate cuts.
While inflation persistence risks are receding, some members remain wary of acting too quickly, prioritizing sustainable price stability over immediate demand support.
This cautious approach, however, risks a sharper economic downturn if policy remains restrictive for too long.