The Bank of England has kept interest rates unchanged at 3.75%, with financial markets now pricing in a 50% probability of a cut at the next meeting in March. Governor Andrew Bailey endorsed this assessment, saying it represents “not a bad place to be.”
The monetary policy committee’s 5-4 vote to hold rates revealed significant internal debate, with four members supporting an immediate quarter-point reduction. This close division follows six previous rate cuts since mid-2024 and indicates that the committee is closely balanced on the question of further easing. The narrow margin suggests that market expectations of future cuts are well-founded.
Governor Bailey’s endorsement of the market’s 50-50 assessment for March is significant because it suggests genuine uncertainty about the next move rather than a clear bias in either direction. Speaking to Bloomberg TV after the decision, Bailey stated that going into March with even odds “is not a bad place to be,” indicating that the decision will depend heavily on incoming economic data.
The Bank’s latest forecasts show inflation falling to around 2% by spring, which Bailey characterized as good news. However, he emphasized the importance of ensuring inflation remains at this level, which explains the caution about proceeding too quickly with rate cuts. Economic growth projections have been revised down to 0.9% for this year from 1.2% previously, while unemployment is expected to reach 5.3%.
Chancellor Rachel Reeves’s budget measures are playing a crucial role in the inflation outlook. Her package, including utility bill cuts and rail fare freezes starting in April, is expected to drive inflation down to 2.1% by the second quarter of 2026, compared to 3.4% in December. This improvement, combined with weaker growth, creates the conditions that make market expectations of a March rate cut realistic, though far from certain.