The Bank of England has held the base rate at 3.75% after a narrow five-to-four vote by the Monetary Policy Committee (MPC), reflecting continued caution amid persistent inflationary pressures.
Inflation remains above the 2% target at 3.4%, reinforcing the case for maintaining policy stability while officials assess whether price growth will ease in the months ahead. The Bank signalled it is seeking clearer evidence that easing labour market conditions will further reduce price pressures.
Todd Cutting, head of enhanced liquidity at Aviva Investors, said: “Markets may have hoped for clearer dovish breadcrumbs but today’s announcement instead delivers a firmer restatement of existing guidance. The signal is steady, not soothing, and that’s likely to keep the front end responsive to every incoming data print.”
However, the narrow vote – with governor Andrew Bailey being the decider – suggests that cuts are not a matter of if but when.
Ed Monk, pensions and investment specialist at Fidelity International, said: “The Bank will be aware of the one-off effects from April 2025 utility bill increases and tax rises fall out on year-on-year comparisons for inflation over the coming months.
“Meanwhile, wage rises – which the Bank watches closely for signals of consumer spending power – have been weakening, further reducing the need for higher rates.
Other signals from the labour market have also shown weakness, with fewer people on the payroll, more unemployed and more claiming out-of-work benefits, Monk warned.
“We have seen evidence that investors are now rotating away from cash and cash-like investments as the rates edge lower,” he said.
“Cash funds were prominent in our best-seller lists throughout 2025, but the picture has shifted as we move through 2026, with investors moving money off the sidelines and into the stock market.”
According to Patrick Farrell, group chief investment officer at Charles Stanley, this caution from policymakers and ongoing uncertainty is likely to frame the year ahead for investors.
“At times, it feels like waiting for a bus that may or may not be running – there’s no set timetable and each move now depends on whether upcoming data gives the Bank enough confidence to act,” he said.
“Growth isn’t strong enough to remove doubts, nor weak enough to force decisive action, leaving the path for rates open ended. Instead of the smoother, more predictable cutting cycles of the past, we may see a more uneven journey. In this setting, staying adaptable, diversifying effectively, and being prepared for a range of outcomes will be essential for investors as global policy shifts unfold.”
Luke Bartholomew, deputy chief economist at Aberdeen, is more optimistic. So long as inflation moderates over the coming months, he expects Bailey to swing in favour of further cuts in the “not too distant future”, noting “we think there is a strong case for rates to eventually fall to 3% later this year”.
But the Bank has been cautioned not to wait for too long.
George Brown, senior economist at Schroders, said: “The temporary disinflationary window ahead should offer enough cover to justify one or two more cuts.
“However, the Bank will have to act soon if it intends to cut, before that window closes and the opportunity for further easing slams shut in the second half of the year.”