Bank of England Keeps Rates Unchanged as Chancellor’s Budget Measures Drive Inflation Lower

The Bank of England has opted to hold interest rates at 3.75%, but the institution’s latest communications suggest that borrowing costs will decline further in the months ahead. This decision comes as inflation pressures ease significantly, partly due to government policy interventions.
A narrower-than-anticipated voting split among monetary policy committee members revealed growing support for rate cuts. The 5-4 decision, with four members backing an immediate reduction, indicates that the committee is moving closer to consensus on easing policy. This follows a series of six rate cuts that have been implemented since the middle of 2024.
Governor Andrew Bailey emphasized the positive inflation trajectory in his remarks following the decision. He projected that inflation would fall back to approximately 2% by spring, marking a return to the government’s target level. While celebrating this progress, Bailey insisted that rates needed to remain at current levels to secure this achievement and prevent any resurgence in price pressures.
The Bank’s latest quarterly forecast paints a picture of subdued economic growth, with GDP expected to rise by just 0.9% this year. This represents a significant downgrade from the 1.2% growth rate anticipated just three months ago. The weaker outlook reflects multiple headwinds facing the British economy, including higher business costs and global economic uncertainties.
Rachel Reeves’s budget initiatives are proving instrumental in controlling inflation. Her package of measures, including reduced utility bills and frozen rail fares, takes effect in April and is expected to have a substantial dampening effect on consumer prices. As a result, the Bank now forecasts inflation will drop to 2.1% by the second quarter of 2026, compared to December’s 3.4% reading, offering much-needed relief to households struggling with cost-of-living pressures.