Bank of England Keeps Rates at 3.75% With Projections Much Lower Than November Forecast

The Bank of England has held interest rates at 3.75% while publishing revised economic projections showing both weaker growth and lower inflation than anticipated in its November forecast. These significant revisions are shaping the outlook for future monetary policy.
The monetary policy committee’s 5-4 vote to maintain rates came despite these downward revisions, with four members believing the weaker outlook already justified immediate easing. The close split follows six rate cuts since mid-2024 and suggests that further reductions are likely as the revised economic picture becomes clearer.
The Bank’s latest monetary policy report shows inflation is now expected to fall “much more than expected” to 2.1% by the second quarter of 2026, well below the 3.4% recorded in December. This dramatic improvement is partly driven by government policy measures, including utility bill cuts and rail fare freezes taking effect in April. Governor Andrew Bailey emphasized that inflation should return to around 2% by spring.
Economic growth forecasts have been revised significantly lower, with GDP now projected to expand by 0.9% this year compared to the 1.2% forecast in November. This downgrade reflects concerns about the impact of higher employer costs and other headwinds facing the economy. The labor market outlook has also deteriorated, with unemployment now expected to reach 5.3% this year compared to the 5% previously projected.
The substantial changes in the Bank’s forecasts since November highlight the rapidly evolving economic landscape. While lower inflation is positive news, the weaker growth outlook creates additional complexity for policymakers. The combination of these factors supports the case for further rate cuts, though the committee remains divided on timing. Chancellor Rachel Reeves’s budget measures are proving more impactful than initially anticipated, particularly in controlling inflation.