LONDON, Feb. 5, 2026 — The Bank of England kept its benchmark interest rate unchanged on Thursday, opting for caution as policymakers weigh stubborn inflation against signs of slowing economic momentum.
The Monetary Policy Committee voted to hold the base rate at 3.75%, extending a pause that has now lasted several months. Officials said recent data showed progress in curbing price growth but warned that inflation remains above the Bank’s 2% target and risks persist in key sectors, particularly services and wages.
In a statement accompanying the decision, the Bank noted that while headline inflation has eased from its peaks in previous years, December’s reading showed a slight uptick, underscoring the fragility of the disinflation process. Energy prices have stabilized compared with the volatility of recent winters, but food and housing costs continue to exert pressure on household budgets.
Governor Andrew Bailey said the Bank would maintain a “careful and data-driven approach” in the months ahead. “We have seen encouraging signs that inflationary pressures are moderating,” he said. “However, it is too soon to declare victory. We must ensure that inflation returns sustainably to target.”
Financial markets had widely expected the hold, with investors pricing in the possibility of rate cuts later this year if inflation continues to trend downward. The pound moved little after the announcement, while gilt yields edged lower as traders assessed the tone of the Bank’s guidance.
For millions of homeowners, the decision means mortgage costs will remain elevated for now. Borrowers coming off fixed-rate deals continue to face significantly higher monthly repayments compared with pre-2022 levels. Lenders have adjusted rates in anticipation of eventual easing, but relief has been gradual.
Savers, on the other hand, have benefited from higher returns on deposits. Banks and building societies have competed for customers with improved savings products, though consumer groups argue that increases have not always matched the pace of rate hikes over the past two years.
Businesses are also watching closely. Small and medium-sized enterprises say borrowing costs remain a constraint on expansion plans. Manufacturing output has been subdued, and recent surveys point to cautious hiring intentions. At the same time, the labour market remains tight by historical standards, with wage growth still running above levels consistent with the Bank’s inflation target.
Economists are divided on when the first rate cut might come. Some argue that with growth stagnating and consumer confidence fragile, the Bank risks holding policy too tight for too long. Others contend that easing prematurely could reignite price pressures and undermine hard-won credibility.
“The central challenge is balancing the risk of persistent inflation against the risk of tipping the economy into a deeper slowdown,” said one London-based analyst. “The Bank is signaling patience, but the window for a pivot later this year remains open.”
The government responded cautiously to the decision. Treasury officials reiterated their commitment to fiscal discipline and measures aimed at supporting long-term growth. Chancellor Rachel Reeves said stable prices are essential for economic security, adding that the government would continue working with the Bank to create conditions for sustainable expansion.
Opposition figures criticized what they described as the lingering cost-of-living strain on households, urging faster action to reduce borrowing costs and boost incomes.
Looking ahead, attention will turn to upcoming data releases on wages, employment and consumer prices. The Bank’s next set of forecasts, due in the spring, will provide a clearer picture of how policymakers view the trajectory of inflation and growth through 2026.
For now, the message from Threadneedle Street is one of vigilance. The battle against inflation may be progressing, but policymakers are not yet ready to shift course decisively.
