After cutting the base rate in December, central bank makes its first move of the year
The Bank of England has kept its base rate unchanged at 3.75%, pausing after December’s quarter‑point cut while policymakers assess whether slowing wage growth and a softer labour market are sufficient to bring inflation back to target.
At today’s meeting, the Monetary Policy Committee (MPC) voted, 5–4, to leave Bank Rate on hold, in line with expectations from most economists. The decision maintains the UK’s position as the G7 country with the highest official borrowing costs, even as headline inflation continues to edge lower.
The Monetary Policy Committee voted by a majority of 5-4 to cut interest rates to 3.75%.
— Bank of England (@bankofengland) December 18, 2025
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“A decision to hold Bank Rate at 3.75% comes as little surprise and should not be mistaken for a shift in direction,” said Nicholas Mendes, mortgage technical manager at John Charcol. “Inflation remains above target and the more stubborn elements of price growth have not softened enough to make another cut feel comfortable. The recent uptick will reinforce caution, particularly while services and food inflation remain elevated.
Consumer price inflation was 3.4% in December, still the highest rate among the major advanced economies. Governor Andrew Bailey has previously indicated that inflation could return to the 2% target as early as April or May, helped by the policy measures in chancellor Rachel Reeves’s November Budget and recent moves in currency markets which have supported sterling.
However, the Bank remains wary that much of the near‑term fall in inflation reflects one‑off factors. Pay growth has eased but remains strong, and services and food inflation are proving slow to retreat. The MPC has argued that as policy rates approach a more neutral setting – neither restricting nor stimulating growth – it will move carefully.
“Rates were only cut in December, and monetary policy works with a lag.” Mendes said. “Holding now allows the Bank to assess whether easing wage growth and a softening labour market begin to feed through into lower underlying inflation, without creating unnecessary volatility in policy.
“Markets have long priced a hold, so the real signal will come from the vote split and the Governor’s tone. Any indication that the door remains open to cuts later in the year will matter more than the decision itself.”
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