UK interest rates live: rates held at 3.75%

Good morning, and welcome to live coverage of today’s UK interest rate meeting at the Bank of England.

Experts overwhelmingly expect the Monetary Policy Committee (MPC) to hold rates at 3.75% today. Will we see a deviation from this prediction? It would come as something of a shock if so.

Whatever happens, stick with us here as we bring you live preview in the run-up to the decision, as well as reaction in its aftermath.

December’s inflation uptick makes a hold more likely

Inflation is arguably the most influential factor on MPC interest rate decisions. The Bank of England has a remit to keep inflation around 2%, and interest rate changes are the key lever it uses to achieve this.

Higher interest rates have the effect of limiting consumers’ disposable income. That, in theory, reduces demand across the economy, which has a dampening effect on inflation.

The latest bout of inflation appears to have peaked at 3.8% between July and September. It had been coming down faster than expected in the meantime, which helped the MPC justify a rate cut in December.

But last month’s inflation reading (covering December) showed a rise in inflation to 3.4%. While widely expected, this will likely discourage the MPC from making a second successive cut – something it hasn’t done since the first quarter of 2020, when the Covid pandemic looked set to collapse the economy.

"We expect the UK’s disinflationary trend to continue through 2026, with slack in the labour market steadily increasing,” said Grant Slade, economist at investment research firm Morningstar. “However, the Bank of England is likely to hold rates this month as it waits for further evidence that wage growth and broader price pressures are softening.”

When does the MPC announce UK interest rates?

The MPC’s decision will be announced today at 12pm.

We’ll bring you the result as it lands. Stay tuned!

The trajectory of UK interest rates

December’s cut was the latest in a gradual cycle of interest rate cuts that have seen UK base rate fall to 3.75%, from 5% in August 2024.

The steep rise in interest rates from January 2022 onwards reflects the Bank of England’s attempt to control inflation, which spiked in the wake of Russia’s invasion of Ukraine.

Throughout the recent cutting cycle, the MPC has never cut UK interest rates in two consecutive meetings. It isn’t expected to change that approach today.

Economists predict a rates hold

Persistent inflation combined with the cadence, to date, of the MPC’s interest rate cutting cycle means that most experts and economists expect rates to be held where they are today.

“The majority of MPC members anticipate further rate cuts will be required, but they're concerned about the potential strength of 2026 pay awards and their impact on inflation,” said Edward Allenby, senior UK economist at advisory firm Oxford Economics.

While the economy is in a precarious state, there hasn’t been enough fresh data, particularly on what is happening with inflation, since the last meeting to be able to justify a successive cut.

“The data flow since the MPC’s last meeting does little to change the risk balance between persistent inflation and weak growth,” said Robert Wood, chief UK economist at advisory firm Pantheon Macroeconomics.

What to watch for in today’s MPC meeting

Meetings like today’s, when the verdict on UK interest rates is almost a foregone conclusion, can feel like a damp squib. But there will still be key talking points: specifically, the split of votes among the nine-person MPC panel, and the forward guidance they issue.

Robert Wood, chief UK economist at advisory firm Pantheon Macroeconomics, expects a 6-3 vote split in favour of holding rates at 3.75%, while Edward Allenby, senior UK economist at advisory firm Oxford Economics, expects a 7-2 split.

“We don't think the recent data have been weak enough to convince a majority on the committee to vote for a February cut next week,” said Allenby. “Indeed, there's a good chance that the vote split will be wider than December's 5-4 decision, with just [Swati] Dhingra and [Alan] Taylor likely to vote for a cut.”

The minutes of the meeting published afterwards, will also be closely scrutinised by experts to gain a clearer picture of when UK interest rates might next be cut.

“Key things to watch here will be the debate around the weak labour market versus firming price pressures in survey data, including wage settlements from the Bank's Agents survey,” said Sanjay Raja, chief UK economist at Deutsche Bank. “We will be looking at positioning within the MPC and how much weight each member puts on each matter. Any dissenters beyond Taylor and Dhingra will be important to keep an eye on too.”

How are UK interest rates decided?

As we approach the announcement of today’s Monetary Policy Committee (MPC) meeting, it’s worth taking a look at who makes up the committee, and how it sets UK interest rates.

The MPC is made up of nine members. These are the governor of the Bank of England (currently Andrew Bailey) who serves as the committee’s chair, three deputy governors for monetary policy (Clare Lombardelli), financial stability (Sarah Breeden) and markets and banking (Dave Ramsden), the chief economist (Huw Pill) and three external members that are appointed directly by the chancellor (Swati Dhingra, Alan Taylor and Catherine Mann).

The committee assesses the available economic data in a series of meetings before voting on a proposal regarding UK interest rates put forward by the governor. All members then vote either for or against the proposal – if against, they are asked to state what alternative policy they would support. A majority is required for the policy to become set.

In the rare event of a tie (which requires at least two different alternative policy suggestions given there is an odd number of committee members), then the committee votes again.

What do you think will happen to UK interest rates?

It’s nearly midday, which means the MPC’s UK interest rates decision is nearly with us.

Which way do you see it going? Let us know in our poll:

BREAKING: UK interest rates held

To the surprise of absolutely no-one, the MPC has voted to hold UK interest rates at 3.75%.

The key variables today are the comments and outlook from the committee. We’ll bring you detailed analysis shortly.

MPC vote split surprisingly close

The headline result is not a surprise, but the tightness of the vote certainly is.

The UK interest rates hold went through with a 5-4 majority, meaning that, for the third consecutive meeting, Bank of England governor Andrew Bailey effectively cast the deciding vote.

Sarah Breeden, Swati Dhingra, Dave Ramsden and Alan Taylor all voted to cut rates by 0.25 percentage points.

Wage growth is trending in line with target-level inflation

Two of the surprise dissenters, Sarah Breeden and Dave Ramsden, both highlighted the fact that wages are trending downwards as in their rationale for voting for a cut.

"Wage growth is set to end this year at target-consistent levels; structural change in the labour market now appears less likely to have occurred; and slack is judged to be a little wider both now and over the forecast," said Breeden.

"Core disinflation is clearly progressing with cumulative weakening in the labour market" said Ramsden. "I am increasingly confident that wage growth will fall to target-consistent rates this year."

Will we see further UK interest rate cuts soon?

Many commentators expect the next cut to come in April rather than at the next meeting in March, but comments from other committee members could be read as undermining this assumption.

"New analysis and current developments have moved the appropriate time for a cut in Bank Rate closer," said Catherine Mann. Bank of England governor Andrew Bailey indicated that he sees "scope for some further easing of policy", but emphasised that he doesn't expect a cut at any particular meeting.

"A cut at the next Bank meeting in March is most certainly on the table," said Luke Bartholomew, deputy chief economist at investment firm Aberdeen. "And even if it takes a bit longer for the next cut to come through, we still think there is a strong case for rates to eventually fall to 3% later this year."

UK interest rates still trending downwards

Here’s how today’s UK interest rates decision looks against the historical trend:

“The Bank of England has pushed a big red pause button on interest rate cuts as caution remains the name of the game and policymakers assess flickering growth and stubborn inflation,” said Susannah Streeter, chief investment strategist at Wealth Club. “Although the signs are that the price spiral will be dampened down in the coming months, they’ve judged that it’s still too early to move, especially given signs that growth in the economy is showing tentative signs of making a comeback.”

Streeter also highlighted that the tight vote came as a surprise and perhaps signposts a rate cut sooner than some expected.

“It puts a cut in March still very much in the picture,” she said. “The labour market is showing weakness, Budget changes are set to bring down energy and transport costs and a wave of cheaper Chinese goods are heading this way. So, more policymakers could well be swayed to vote for lower borrowing costs next month.”

"A bus that may or may not be running"

The balancing act that the MPC's members are attempting is palpable in today's meeting minutes. On the one hand, there is a clear appetite to cut in order to bolster the economy, but timing this so as to keep inflation on a downward path is absolutely key.

"The Bank’s tone highlights how cautiously policymakers are approaching this stage of the cycle," said Patrick Farrell, group chief investment officer at investment manager Charles Stanley. "With signals from inflation and the labour market still mixed, they’re navigating a far more stop-start environment than in the past.

"At times, it feels like waiting for a bus that may or may not be running," said Farrell. "There’s no set timetable, and each move now depends on whether upcoming data gives the Bank enough confidence to act."

FTSE rises on MPC’s dovish hold

The stock market has not been having a good day today, but the unexpectedly tight vote does seem to have given a small boost for UK stocks.

The FTSE 100 climbed around 0.4% while the FTSE 250 climbed around 0.2% immediately after the MPC’s report was released, though both indices remain below yesterday’s close.

In very broad terms, lower interest rates tend to benefit stocks as they encourage economic growth and investment.

UK interest rates: inflation outlook is revised lower

Today’s MPC meeting notes included surprisingly dovish comments even from some members who voted in favour of holding interest rates at their present level.

The Monetary Policy report which has been released alongside today’s announcement reveals that the Bank now expects inflation to fall towards the target level of 2% sooner than had been expected. In fact, it states that headline CPI inflation could fall to 2.1% as soon as Q2 this year – largely thanks to the energy bills package unveiled in the Autumn Budget.

The last Monetary Policy report, published in November, put the equivalent figure at 2.8%.

How do interest rates affect your money?

In general, higher interest rates are good for savers (because they earn more interest on their savings) and bad for borrowers (because they pay more interest on their debt).

“Savers may welcome the prospect of higher returns for longer, but borrowers hoping for additional relief from high mortgage or debt repayments will need to stay patient for now,” said Alice Haine, personal finance analyst at online investment platform Bestinvest.

“Living costs remain high and borrowing costs are still elevated compared with the long era of ultra-low interest rates that followed the Global Financial Crisis,” Haine added. “Combined with the stealth impact of frozen income tax thresholds, this is making it harder for some households to balance the books.”

Recap: UK interest rates held at 3.75%

As a recap: the MPC held UK interest rates at 3.75% today, as widely expected, but the headline was a narrow 5-4 vote split (some experts had predicted as many as seven committee members voting to hold rates steady) and unexpectedly dovish comments from some committee members.

This has seemingly opened the door for a rate cut at the next meeting in March, something which most observers felt was unlikely ahead of today’s meeting.

The Bank of England now expects the rate of inflation to fall faster through the first half of this year than it did at the time of its November meeting, when it last published a Monetary Policy report.

Thanks for following live coverage of today's UK interest rates decision. We're going to end our coverage here at this point, but keep a close eye on MoneyWeek.com over the coming days as we bring you more analysis of today's decision and what it means for you.