The Bank of England has maintained interest rates at 3.75% while publishing its quarterly monetary policy report showing significant revisions to both growth and inflation forecasts. These changes are reshaping expectations for the future path of monetary policy.
The monetary policy committee’s 5-4 vote came alongside the publication of detailed forecasts showing weaker growth and lower inflation than anticipated in November. Four members believed these revisions already justified immediate rate cuts, while five preferred to assess whether the forecast changes materialize before easing further.
The quarterly report projects GDP growth of just 0.9% this year, a notable downgrade from the 1.2% forecast made three months earlier. This revision reflects concerns about the impact of higher employer costs and other economic headwinds. The labor market outlook has also deteriorated, with unemployment now expected to reach 5.3% compared to 5% previously.
On inflation, the report shows a dramatic improvement in the outlook. The Bank now expects inflation to fall “much more than expected” to 2.1% by the second quarter of 2026, well below the 3.4% recorded in December. This improvement is largely attributable to government policy measures, particularly utility bill cuts and rail fare freezes taking effect in April.
Governor Andrew Bailey emphasized that inflation should return to around 2% by spring, which he characterized as good news. He suggested that conditions should allow for further rate cuts during the year, though ensuring inflation stays at this level remains a priority. The quarterly report’s major revisions underscore how rapidly the economic landscape is evolving and explain why policymakers remain divided about the appropriate pace of monetary easing.