Bank of England Likely to Hold Rates on February 5 Amid Mixed Economic Signals

The Bank of England (BoE) is expected to keep its benchmark interest rate steady at 3.75% when it meets on February 5, according to a Reuters poll of economists. Only a small minority anticipate a cut to 3.50% in March, reflecting a cautious approach following a string of stronger-than-expected economic data.


Despite inflation remaining the highest among the Group of Seven industrialized economies, the nine-member Monetary Policy Committee (MPC) has been closely divided in recent meetings. In December, the committee narrowly voted 5-4 in favor of a quarter-point rate reduction, highlighting persistent uncertainty over the balance between growth, inflation, and financial stability.

Recent Data Supports a Wait-and-See Approach

The decision to hold rates comes after encouraging signs of economic momentum. Private sector business growth in the U.K. reached its strongest level since April 2024, while retail sales remained robust. Inflation continues to run above the BoE’s 2% target, but most economists expect it to ease in the coming months as wage growth moderates and unemployment edges higher.


There are also early signs of a revival in the housing market, following a period of stagnation ahead of last November’s budget. Taken together, the data suggests that the MPC may prefer to assess incoming information before making further moves on rates.


March Cut Remains a Possibility


Of the 56 economists surveyed, around 55% now expect a rate cut by the end of March, down from 72% in December. The remainder foresee the BoE holding rates through the first quarter of 2026. Beyond Q1, forecasts diverge, though the median expectation points to a final cut to 3.25% later in the year.


Some MPC members have expressed caution about acting too quickly, emphasizing the need for a broader accumulation of evidence before implementing the next rate adjustment. Meanwhile, projections for economic growth and inflation remain relatively unchanged, with the U.K. economy expected to expand 1% this year and 1.4% in 2027, while inflation averages 2.5% this year before easing to 2.1% next year.


Inflation Trends and Wage Growth


Economists highlight factors likely to ease inflation in the months ahead, including the expiration of higher VAT on private school fees and slower utility price rises. Evidence of a loosening labor market and moderating wage growth should also help reduce pressure on services inflation, moving the U.K. closer to its long-term target.


MPC members, however, remain attentive to wage-setting behavior by businesses, which could pose a risk to inflation expectations if rises prove larger than anticipated. Overall, the central bank appears poised to take a measured, patient approach as it navigates between supporting growth and containing inflationary pressures.