The Bank of England will hold its benchmark interest rate at 3.75% at its February meeting, according to all but two economists polled by Reuters, with only a small majority now expecting it to fall to 3.50% in March following a run of better economic news.
With inflation still the highest among Group of Seven industrialised peers, the nine-member Monetary Policy Committee has been tightly split at the last few meetings, most recently in December when it voted 5-4 in favour of a quarter-point rate cut.
The decision to keep Bank Rate unchanged this month may be less hotly debated given recent news of the strongest private sector business growth since April 2024 alongside unexpectedly strong retail sales and inflation rising further from the MPC’s 2% target.
Most economists expect inflation to fall again in coming months, and for strong wage growth to continue decelerating as unemployment creeps up. But there is likely not enough compelling data to justify a majority vote to cut rates again just yet.
There is even some evidence of a moribund housing market springing back to life after uncertainty ahead of the November budget has cleared.
Of the 56 economists surveyed in a January 21-26 poll, all but two expected the BoE to hold Bank Rate at its February 5 meeting, when it releases its updated quarterly economic forecasts, in line with market pricing. The remaining two forecast a cut to 3.50%.
“If you go back to December, some of the voters who have cited two-sided risks to the outlook have talked about the need for a potentially larger accumulation of evidence before we have the next move in Bank Rate,” said Sanjay Raja, chief UK economist at Deutsche Bank.
“And so that gives us some pause for thought in thinking whether this is an MPC that potentially considers skipping Q1 entirely…The bank will want to take a wait-and-see approach, let the dust settle on some of the data.”
Only around 55% of economists, 31 of 56, expected a cut by end-March while 45% forecast the BoE would hold rates through Q1. In December, 72% of respondents polled expected Bank Rate to fall by 25 bps or more this quarter.
As in the December poll, there was no majority view on where rates will be in any quarter beyond the current one, even though the median forecast shows a final cut to 3.25% in Q3.
A majority of economists are still forecasting rates to bottom at 3.25% or lower, and the split hasn’t changed much. While 21 expect rates at 3.25% by the end of the year, 16 say 3.00% and two say 2.75%.
There were no noticeable changes to growth or inflation forecasts either compared with the December poll.
The UK economy was forecast to grow 1% this year and 1.4% next, while inflation is expected to average 2.5% this year and fall to 2.1% in 2027.
Ellie Henderson, economist at Investec, noted inflation will likely dip starting in January as 20% VAT on private school fees imposed in the previous year will drop out of the annual comparison. She also expects weaker rises in water bills from April.
“There are also signs the labour market is loosening, wage growth is coming down, that should weigh on services inflation as well. So yeah, we think inflation will fall over the coming months, not quite to the 2% target, but we’ll certainly make progress towards it,” she said.
MPC member Megan Greene said on Friday she remained concerned about how much businesses intend to raise wages this year and the challenge that might pose to achieving the 2% target.
(Other stories from the Reuters global economic poll)
(Reporting by Shaloo Shrivastava）
