The Bank of England (BoE) is set to keep interest rates on hold at 3.75 per cent until at least next month, according to economists’ predictions.
Almost all economic forecasters expect the BoE’s Monetary Policy Committee (MPC) to keep rates at the same level when it next meets this Thursday (5 February) after reducing them from 4 per cent in December.
The news will be a blow to mortgage holders, many of whom would see a reduction in their costs if interest rates were cut.
Economists say that the BoE is still likely to reduce rates at least once later this year.
But the prospect of a reduction this week is close to zero after inflation jumped up in the latest reading last month.
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Forecaster Pantheon Macroeconomics said it expected a 6-3 vote to hold rates from the MPC’s committee.
In a note, it said: “The decision is a foregone conclusion, so focus will be on the guidance, which we expect to change little.
“Pay settlements likely slowing only slightly in 2026 will keep the MPC coy about the timing of the next cut”.
Raj Badiani, economics director at S&P Global Market Intelligence, said that the recent inflation hike to 3.4 per cent – well above the BoE’s 2 per cent target- had removed the chance of a February rate cut.
He told The i Paper: “We had expected the Bank rate to be cut to 3.5 per cent next week, but the rise in headline inflation in December suggests the MPC is likely to vote for no change.
“Headline inflation should fall back notably in January to open the path for a March or April rate cut.”
Michael Saunders, a former member of the MPC and now an adviser at Oxford Economics, said he expected two cuts this year.
“My guess is the end-April meeting and November, but not next week,” he told The i Paper.
Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK, also expects a hold. He said: “Growth picked up in November, and surveys suggest a strong start to the year, which will be enough to keep the MPC on hold despite a continued loosening in the labour market.
“The guidance will probably continue to indicate more cuts are likely but will be increasingly cautious on the timing and number of additional rate cuts needed.”
He expects one more cut in April of this year.
The BoE has said rates are likely to go down in the future, but stressed that this depends on inflation falling.
Along with its last decision, it said: “The extent of further easing in monetary policy will depend on the evolution of the outlook for inflation. The restrictiveness of policy has fallen as Bank rate has been reduced by 150 basis points [1.5 percentage points] since August 2024.
“On the basis of the current evidence, Bank rate is likely to continue on a gradual downward path. But judgements around further policy easing will become a closer call.”
No cut is bad news for mortgage holders
Reductions to the BoE interest rate are generally good news for mortgage rates.
Fixed rates – which most mortgage holders have – tend to follow longer-term trends in the rate, but other types go down directly when the BoE reduces rates.
Tracker rates reduce straight after the BoE reduces rates and standard variable rates (SVRs) tend to, although it is not guaranteed.
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If you are on an existing fixed-rate mortgage, your rate stays the same for the duration of the fix, but it will change when you come to remortgage.
The cheapest rates are currently around 3.5 per cent, but they are only available for customers with large deposits or equity in their home.
Most customers can now access rates below 4 per cent, though.
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