Bank of England holds base rate at 3.75% amid inflation concerns as economy enters 'delicate phase'

At today's meeting, MPC policymakers voted by a majority of five-to-four to maintain the base rate at its current level of 3.75 per cent.

Notably, four members of the committee voted to reduce borrowing costs by 0.25 percentage points, to 3.5 per cent.

CPI inflation is expected to “fall back to around the target” of two per cent from April, which the Bank had previously predicted would happen in 2027.

In a statement, the MPC shared: "The risk from greater inflation persistence has continued to become less pronounced, while some risks to inflation from weaker demand and a loosening labour market remain."

Concerningly, the Bank of England downgraded its growth forecasts for 2026, from 1.2 per cent to 0.9 per cent, and from 1.6 per cent to 1.5 per cent for the following year.

As well as this, the central bank is projecting the unemployment rate to rise to 5.3 per cent this year, having said in November that it would peak at 5.1 per cent.

Over the years, policymakers on the central bank's MPC have voted to raise the cost of borrowing to as high as 5.25 per cent in an effort to rein in inflationary pressures. However, as the CPI rate has fallen to around three per cent, the Bank of England has brought the base rate down to 3.75 per cent.

This has benefited debt borrowers and mortgage holders, however interest rates remain elevated from pre-pandemic levels.

Charlie Ambler, the co-chief investment officer and partner at wealth management firm Saltus, said: “Having cut the base rate to its lowest level in almost three years in December, the Bank of England now finds itself in a more delicate phase of the easing cycle.

"Progress on services inflation and wage growth remains key, and with headline inflation ticking higher last month, the consensus expectation is that rates will be held at 3.75 per cent this week.

"Short term fluctuations in inflation data are unlikely to alter the broader direction of travel, but the Bank will be keen to reinforce its commitment to a gradual and measured approach to rate cuts.

"The full disinflationary impact of the tax measures announced in the Autumn Budget has yet to feed through, which means policymakers are likely to strike a cautious tone in their forward guidance.

"How confident the Bank sounds that inflationary pressures are being brought under control will be closely watched by markets.

"For investors, the backdrop remains one of uncertainty. Persistent inflation pressures and ongoing geopolitical risks continue to shape asset allocation decisions, reflected in sustained demand for both gold and Government bonds.

"In this environment, the focus should remain firmly on quality and resilience, with disciplined portfolio construction and selective exposure to interest-rate-sensitive areas and UK equities where valuations remain compelling."