The Bank of England’s Monetary Policy Committee voted seven to two on Thursday to hold the base interest rate at 4.25%, resisting pressure from some quarters to accelerate the pace of monetary easing as inflation proved stickier than expected in the first quarter of 2026. The decision was broadly in line with market expectations, though the composition of the vote — with two members dissenting in favour of a 25 basis point cut — suggested that the debate within Threadneedle Street remains far from settled.
Governor Andrew Bailey, addressing journalists at the Bank’s quarterly press conference, acknowledged the difficult balance facing policymakers. “We are seeing encouraging signs of disinflation in goods prices, but services inflation remains elevated at 5.1%, well above levels consistent with our 2% target,” Bailey said. “The Committee judges that a cautious approach remains appropriate at this juncture.”
The decision comes against a backdrop of mixed economic signals. UK GDP growth came in at 0.3% in February, slightly above expectations, driven by a resilient services sector. However, consumer confidence indices have softened in recent weeks, partly reflecting ongoing uncertainty around global trade tensions following the US administration’s tariff announcements in early 2026. The labour market, meanwhile, continues to show signs of gradual loosening, with the unemployment rate edging up to 4.6% from 4.4% in December 2025.
Inflation stood at 2.9% in March 2026, down from a recent peak of 3.4% in November 2025 but still above the Bank’s 2% target. Energy prices have provided some relief following a sustained fall in wholesale gas prices, but food price inflation has remained uncomfortably high at 3.8%, squeezing household budgets despite the broader easing of inflationary pressures.
Financial markets responded calmly to the decision, with sterling holding steady at $1.2850 against the US dollar and two-year gilt yields dipping marginally to 4.18%. Swap markets continued to price in approximately two further 25 basis point cuts in 2026, with the next expected at the June meeting.
Economists at major City institutions offered differing interpretations of the Bank’s forward guidance. Goldman Sachs maintained its forecast of rates reaching 3.75% by year-end, while Barclays Research pushed back its expectation of the first additional cut to August, citing the persistence of services inflation as a constraint on the Bank’s room for manoeuvre.
— Sarah Mitchell, London Capital Post
