Bank of England likely to keep Bank Rate steady as inflation proves sticky

The Bank of England enters its first policy meeting of the year with most market participants forecasting no change to the Bank Rate, which is anticipated to remain at 3.75%. Policymakers face a familiar dilemma: headline inflation remains above the 2% target while other indicators — notably employment, vacancies and early signs of easing wage growth — point to softer domestic demand. That mix reduces upside risks to prices but keeps the committee data-dependent, encouraging a pause rather than a decisive shift in stance. Recent votes showed a narrow preference for easing at the previous meeting, underlining internal caution and the need for clearer readings before committing to a sequence of cuts. Analysts remain split on how many reductions might occur later in 2026, with scenarios ranging from a single cut to a small number of modest reductions if disinflation becomes more evident. Financial markets have already begun to reprice policy expectations, cutting the odds of immediate moves and adjusting gilt yields and derivative-implied probabilities accordingly. The Bank will publish its quarterly Monetary Policy Report alongside the decision, and investors will scrutinise any revisions to growth, unemployment and wage forecasts for signals on the likely timing of easing. For households, the distributional impact differs: roughly one million mortgage holders on variable or tracker deals would respond quickly to policy moves, while those on fixed rates face a renewal pipeline that will depend on market funding conditions. Savers have seen pressure on deposit returns — about 70% of providers reduced rates at the start of the year — eroding real returns while inflation remains elevated. The BoE’s cautious hold mirrors a broader pattern among major central banks that are prioritising flexibility in response to mixed labour-market and price signals. That posture preserves policy optionality but increases the importance of upcoming jobs, wages and inflation releases as potential inflection points for markets, households and lenders. In short, the immediate outcome is likely to be a hold accompanied by carefully calibrated guidance: words about uncertainty, sequencing and downside risks will matter as much as the vote itself.