The Bank of England has kept interest rates on hold at 3.75% after a closely split vote, underscoring deepening divisions among policymakers over when to begin cutting borrowing costs…reports Asian Lite News
The Bank of England held its benchmark interest rate steady at 3.75% at its first policy meeting of 2026, as policymakers remained divided over how soon to begin easing monetary policy amid persistent inflation pressures and uneven economic momentum.
The nine-member Monetary Policy Committee voted by a narrow margin of 5–4 to keep rates unchanged, a significantly closer split than the 7–2 decision expected by economists. Four members voted in favour of an immediate 25 basis-point cut, signalling growing concern within the committee about the outlook for growth and the risks of keeping policy too tight for too long.
Sterling weakened in response to the decision, slipping 0.6% against the dollar to trade at $1.356, reflecting market sensitivity to the finely balanced debate within the central bank. In its accompanying statement, the Bank said monetary policy was being calibrated to ensure inflation “not only reaches 2% but remains sustainably at that level in the medium term.” While it reiterated that interest rates are “likely to be reduced further,” it cautioned that decisions over easing were becoming “a closer call.”
The vote highlighted increasing divergence within the MPC as members weigh signs of easing inflation against evidence of resilient demand and continued wage pressures. Recent data have sent mixed signals, with some indicators pointing to slowing activity while others suggest the economy is proving more robust than previously anticipated.
Andrew Wishart, senior UK economist at Berenberg, said early 2026 data point to “stronger demand and stickier inflation” than earlier forecasts had assumed. He said this backdrop argues against an immediate move and has led Berenberg to push back its expectation for the first rate cut of the year to the Bank’s April 30 meeting. The firm now anticipates three 25 basis-point cuts over the course of 2026.
Edward Allenby, senior UK economist at Oxford Economics, also expects policy easing to resume but warned that the path is likely to be gradual. “The current bout of mild stagflation is likely to keep the committee divided on the timing of these future cuts,” he said. Allenby added that late April appears the most plausible window for the next reduction, assuming inflation continues to edge lower and growth remains subdued.
Other economists take a more dovish view. Dani Stoilova, UK and Europe economist at BNP Paribas Markets 360, said the Bank could move sooner if incoming data provide reassurance on inflation and pay growth. She expects a cut as early as March, though she cautioned that this could be followed by a prolonged pause, with interest rates eventually settling at a terminal level of 3% by mid-2027.
For now, the Bank appears content to wait for clearer evidence on inflation dynamics, wage growth and spare capacity in the economy. With the committee narrowly split and guidance emphasising data dependence, markets remain finely balanced over when the easing cycle will resume and how quickly rates might fall once it does.
