Bank of England Holds Rates

In a close 5-4 Vote, with the others wanting to cut

February 5, 2026 — The Bank of England’s Monetary Policy Committee (MPC) has voted to maintain the Bank Rate at 3.75%, though the decision revealed a sharp split among policymakers regarding the timing of further easing. In a narrow 5–4 vote at the meeting ending on February 4, 2026, the majority opted to hold rates steady, while four members pushed for an immediate reduction to 3.5%. Despite the hold, the Committee signaled that the Bank Rate is “likely to be reduced further” and acknowledged that judgments on future easing are becoming “a closer call.”

A Improving Inflation Outlook

The economic backdrop for the February meeting was characterized by falling inflation and subdued growth. CPI inflation declined to 3.4% in December, down from 3.8% in September, and is projected to return to the 2% target starting in April. This anticipated drop is largely attributed to developments in energy prices and measures from Budget 2025. However, the Committee remains focused on ensuring inflation remains “sustainably” at the 2% level in the medium term, balancing the risks of persistent price pressures against the dangers of weakening demand.

The broader economy shows signs of cooling. Underlying GDP growth remains below potential, and the labor market has continued to loosen, with the unemployment rate recently rising to just over 5%. Consequently, the Bank’s latest report incorporates a slightly wider output gap than previously forecast, suggesting increased economic slack.

The Majority View: Caution Prevails

Five members—Governor Andrew Bailey, Megan Greene, Clare Lombardelli, Catherine L. Mann, and Huw Pill—voted to maintain the current rate of 3.75%. While this group acknowledged the progress in disinflation, their rationales for holding varied slightly in emphasis.

Three members of this block (Greene, Lombardelli, and Pill) argued that a “more prolonged period of policy restriction” was necessary to mitigate the risk of inflation settling above the target. Megan Greene expressed concern that forward-looking wage indicators remain above target-consistent rates and that household inflation expectations remain elevated. Similarly, Huw Pill emphasized that while the disinflation process is intact, it remains “incomplete,” and warned against withdrawing restriction too rapidly based on short-term news rather than longer-term trends.

Governor Andrew Bailey and Catherine L. Mann, while voting to hold, appeared closer to supporting a cut. They placed greater emphasis on the risks to inflation from weaker economic activity but judged that the current evidence was not yet sufficient to warrant a reduction at this specific meeting. Governor Bailey noted that while he sees scope for further easing, he needs to assess the accumulating evidence at next meetings to determine if a cut is justified. Mann noted that new analysis has moved the appropriate time for a rate cut closer, but cutting now would risk overweighting near-term mechanical disinflation.

The Minority View: The Case for Cutting

Four members—Sarah Breeden, Swati Dhingra, Dave Ramsden, and Alan Taylor—dissented, voting for a 0.25 percentage point reduction. This group argued that the risk of inflation persistence has “receded materially” and that monetary policy is currently too restrictive given the economic context.

These members highlighted the costs of delaying action. Swati Dhingra warned that the costs of a policy mistake are “much higher on the downside,” particularly given weak labor demand, and that waiting to cut aggressively later would be “no panacea” for a sharp downturn. Sarah Breeden noted that the near-term inflation outlook has improved, supporting a swifter normalization of wage and price-setting dynamics.

Alan Taylor provided a stark assessment of the neutral rate, suggesting a target of around 3% should be in sight now that inflation is expected to return to target alongside emerging slack. He argued that if the Committee waits too long, it risks a “sharper downturn in activity and a significant undershoot in inflation.”

Looking Ahead

The MPC’s guidance suggests that the era of restrictive policy is slowly winding down, with the Bank Rate having already been reduced by 150 basis points since August 2024. Market participants currently expect the rate to fall to 3.25% and stabilize there.

However, the path forward remains dependent on the evolution of inflation persistence. While some members fear cutting too quickly could require a costly reversal if inflation resurges, others worry that maintaining restrictive rates for too long will damage the economy unnecessarily. As the Committee navigates these risks, the minutes indicate that the pace of future easing will act as a mechanism to “gain assurance about how the risks were evolving.”

The next set of minutes will be published on March 19, 2026.