United Kingdom: Central Bank decreases bank rate in February
Latest bank decision: At its meeting on 6 February, the Central Bank voted by a majority to reduce the bank rate by 0.25 percentage points to 4.50%, with two members preferring a larger reduction to 4.25%.
Monetary policy drivers: The decision was driven by moderating core inflation, expectations that underlying price pressures will wane further this year, weaker-than-expected recent GDP growth, declining business and consumer confidence, and a labor market judged to be in balance.
Policy outlook: The Central Bank suggested that future rate cuts would be “gradual and careful”. Our Consensus is currently for around 75 basis points of extra cuts by end-2025, with forecasts ranging from 25 to 175 basis points.
Panelist insight: On the outlook, ING’s James Smith said:
“We think services inflation, a key guiding force for the BoE, is set to fall back in the second quarter and probably further than the Bank’s latest forecasts indicate. Policymakers think this will float around 5% until June (4.4% currently), though as the latest report also notes, some of this is linked to changes in regulated prices. The jobs market, which is showing a few signs of fragility, is also a dovish risk for the Bank. For now though, we still expect the next cut in May, with further moves in August and November.”
Goldman Sachs’ analysts said:
“While there are divergent views on the MPC, and members see significant uncertainty around the path ahead, today’s communication suggests that the centre of the Committee likely continues to view quarterly cuts as appropriate. We therefore continue to expect the Committee to lower Bank Rate in quarterly 25bp steps to 3.25% in 2026Q2, below market pricing.”