NEWS: BOE HOLDS RATE AT 3.75%
- Feb 6
- 4 min read
Updated: Feb 7
BENCHMARK 3.75% RETAINED IN SWING VOTE FROM GOVENOR ANDREW BAILEY
On 05/02/2026 The Bank Of England (BOE) Monetary Policy Committee (MCP) came within 1 vote of a 6th consecutive cut to the base rate predicting that inflation will continue to fall near its 2% target by April 2026. This article provides a short synopsis together with a link the MCP minutes.
MARKET REACTION:
GBP/USD: Dropped when the vote showed more people in favor of an interest rate cut than predicted dropping 0.9% to $1.3526
10-year Gilts: Dropped on the BOE announcement .
Traders: Option pricing suggest the most bearish sentiment in 2 months against the dollar. Prior to Thursday, the odds of a quarter-point cut jumped to over 50%
Next Rate Decision: 19 March 2026.
The MCP meets 8 times per year to consider the base rate and In the last 6 consecutive meetings voted to reduce inflation. Yet on Thursday 5th February 2026 the bank held fire and kept rates at 3.75% in a 5-4 decision with Governor Andrew Bailey casting the swing vote.
This is the second consecutive time Governor Andrew Bailey has had to cast the swing vote. While on this occasion he voted to hold he subsequently confirmed in a statement that "there should be scope for some further reduction in bank rate this year." As the BoE predicted inflation near its 2% target in April together with slowing growth and rising unemployment.
The MCP vote is stark-contrast to most their peers whom have been hiking rates. The Reserve Bank of Australia reversed course after a brief easing cycle last year while the European Central Bank believes that inflation is in "a good place."
While UK inflation has remained on a healthy downward trend, at 3.4% it remains above the ideal 2%.
You can read the Minutes of the Monetary Policy Committee Meeting ending on 4th February 2026 by clicking here. But In brief synopsis the BoE's latest forecasts paint a far gloomier picture of the UK economy than predicted at their last November 2025 MCP meeting.
THE VOTE: The MPC voted by a majority of 5–4 to maintain Bank Rate at 3.75%. Four members voted to reduce Bank Rate by 0.25 percentage points, to 3.5%. All 4 well known MCP doves - Swati Dhingra, Alan Taylor, Dave Ramsden and Sarah Breeden voted for a cut. All 4 MCP Doves votes for a cut double the 2 that the markets had predicted.
INFLATION: The current inflation rate is 3.4%. This is expected to drop to around the 2% in April 2026.
GROWTH: The BOE Slashed its growth forecast down to 0.9% from 1.2% and for 2027 1.5% from 1.6%.
UNEMPLOYMENT: In comparison to it November 2025 prediction, the BoE predicts a further >110'000 people to become unemployed with the jobless rate reaching 5.3% by spring. An approximate additional 0.3% than previously thought.
On Thursday 5th February 2026 Governor Dave Ramsden held a press conference following the bank's decision.
"We have to think about what's going on with subdued activity, with the labour market, on inflation, we're balancing those risk."
Chief Governor Andrew Bailey however, was quick to react to that comment in a bid to assure the public that the bank rejected the notion that unemployment is "a price worth paying:"
"I want to knock that very firmly on the head. We do not welcome unemployment. Let's be very clear our job is to hit the inflation target."
COMMENT
The Bank believes that the UK's natural unemployment rate is 4.75%. Anything below 4.75% is inflationary while anything above is potentially deflationary. Outside of London, the bank does not have a good record of serving the nation.
In 1998, then-Governor Eddie George provoked outrage by suggesting job losses in the north were an acceptable price for curbing inflation in the south. More recently, Chief Economist Huw Pill said Britons needed to help in the battle against inflation by stopping asking for pay rises to maintain their spending power.
Considering the comments of Governor Bailey's colleagues these indicate greater labor market concerns than the bank is admitting:
Deputy Governor for Financial Stability Sarah Breeden warned of "weakening labor market" requiring a faster rate cut.
Swati Dhingra an external MPC member (dove) warned in her personal statement that "the cost of making a policy mistake seemed much higher on the downside, especially given the weak labor demand."
Finally, it is difficult to separate the markets reactions to the BOE rate, from the increased speculation that the current PM Keir Starmer will soon be forced from office. We personally don't put much stock in the speculation that the PM will stand down before the next election as while he was a terrible barrister, it is has been this solicitor-advocate's observation that members of the Bar rarely publicly accept defeat prior to judgement (even when the writing really is all over the judge's face).
