Bank of England Poised to Pause Rate Cuts as Inflation Persists
London, Monday, 2 February 2026.
With UK inflation at 3.4%—the highest in the G7—the Bank of England is expected to hold rates at 3.75% this Thursday, prioritizing price stability over immediate relief.
A Cautious Stance Amidst Stubborn Inflation
The Monetary Policy Committee (MPC) is scheduled to meet this Thursday, February 5, 2026, where it is widely expected to maintain the Bank Rate at 3.75% [1][2]. Following four rate cuts in 2025, culminating in a reduction to the current level in December, policymakers are now signaling a pause to assess the persistence of price pressures [2][5]. Investors have priced in almost no chance of a rate cut this week, reflecting a consensus that the Bank of England requires more evidence of stability before further easing monetary policy [1]. The December inflation reading of 3.4%—the highest among the G7 nations—remains a primary point of friction, exceeding the Bank’s 2% target significantly [1][5].
Divergent Economic Signals
The decision to hold rates arrives amidst a landscape of contradictory economic data. While inflation remains stubbornly high, the real economy shows signs of both resilience and fragility. On the positive side, Gross Domestic Product (GDP) rose by 0.3% in November 2025, and business activity indices hit a 21-month high, suggesting the economy is on a firmer footing than previously expected [2][4]. Conversely, the labor market is cooling rapidly. Unemployment held at 5.1% in the three months through November, a level not seen since early 2021 [4]. Furthermore, private sector pay growth has decelerated sharply, falling from 6% at the start of 2025 to just 3.6% recently [3]. This easing in wage pressures is critical, as MPC members have previously expressed concern over settlement figures hovering around 3.5%, which is slightly above the level consistent with the 2% inflation target [1].
Committee Dynamics and Future Outlook
The internal debate within the MPC is expected to result in a split vote this week. Most economists forecast a 7-2 vote in favor of maintaining the current rate [1][2]. External members Swati Dhingra and Alan Taylor are viewed as the likely dissenters who will vote for a cut, emphasizing the need for lower rates to support the economy [3]. While the Bank is unlikely to alter its forward guidance significantly or explicitly promise a reduction in March, the trajectory for 2026 leans toward further easing [3]. Markets are looking toward the subsequent meetings on March 19 and April 30 as potential windows for the next rate reduction [2][5]. Forecasts suggest headline inflation could drop to 1.8% by April, potentially clearing the path for the Bank to resume its cutting cycle later in the spring [3].