The Bank of England keeps rates unchanged despite market pressures

This week, the Bank of England reaffirmed its stance on interest rates, choosing a path of stability amid a complex and uncertain economic environment. Despite pressures and widespread expectations among market participants, Governor Andrew Bailey led the Monetary Policy Committee toward a cautious decision, reflecting greater prudence compared to the signals circulating in previous weeks.

Bailey opts for stability: the February vote

The decision to keep the interest rate at 3.75% was reached with a tight vote from the Committee, with 5 votes against a cut versus 4 votes in favor. Bailey, in his decisive role, chose not to proceed with further reductions, marking a shift from his stance in December, when he supported easing monetary policy. According to information released by Jin10, the Governor indicated in his official statement that there could be room for subsequent rate cuts if economic conditions permit. Despite this signal of possible future flexibility, the Committee deemed it appropriate to wait before taking further action.

The surprising vote of four dovish members

One of the most surprising aspects for market operators was the extent of the dissent within the Committee. Four members—Dingra, Taylor, Ramsden, and Briden—voted in favor of a rate cut, a result significantly higher than the two or three dissenters the market had anticipated. This broader consensus toward a more accommodative stance reveals considerable internal tension regarding the direction of monetary policy. The meeting minutes highlighted important considerations, noting “slowing economic growth and expanding slack,” while upside risks to inflation are “less pronounced than previously observed.”

Inflation and growth: the central bank’s new forecasts

The economic projections prepared by the central bank required a significant downward revision of growth estimates for the current year. The expansion rate was lowered from an earlier 1.2% to 0.9%, indicating a more pronounced slowdown than initially expected. For 2027, forecasts were also revised downward, from 1.6% to 1.5%, although the outlook for 2028 remains slightly positive at 1.9%, an improvement from the previous 1.8%. Regarding inflation, the central bank remains committed to a gradual convergence toward the 2% target by April, with expectations that the level will stay below this threshold for most of 2027, a reassuring sign for medium-term price stability.