BoE Interest Rate Prep

On Thursday the 5th of February, at 07:00 ET, the Bank of England reveals their decision from it’s latest monetary policy meeting, and releases the rate statement.
Here are some views on what to expect.

General Expectations
Expectation from Analysts and Market Participants forecast the BoE to hold rates steady at 3.75%, unchanged from the prior rate. Although, the range does have a low estimate of 3.5%.

Investment Bank Commentary
RBC
We no longer expect the MPC to deliver a rate cut at its February meeting and instead look for a 6-3 vote to hold Bank Rate at 3.75%. At its December meeting, there was no indication from the MPC, despite a run of weaker data in late 2025, that it was minded to speed up the pace of rate cuts despite it retaining its easing bias. Lingering concerns over wage growth, in particular that emerging slack in the labour market is not feeding through to wages as might be expected, means that the MPC are likely to remain reticent cutters. As reflected in the MPC’s own language, there is a high degree of uncertainty around the cadence of further BoE easing from here as Bank Rate approaches neutral/terminal. While we retain our expectation for the MPC to deliver two 25bps rate cuts in 2026 we push the timing of those cuts back. We now don’t expect the MPC to deliver the next cut to Bank Rate until the April MPR meeting with a second cut not coming until the following MPR meeting in August.

Of the eight MPC meetings in 2025, half ended in a marginal, 5-4, vote split. However, as the year progressed and the two camps on the MPC seemed to become more entrenched, three of those four 5-4 splits came in the second half of the year with Governor Andrew Bailey emerging as the key ‘swing voter’ on the Committee. In terms of the outlook for the BoE that is, to a large extent, the easy bit. The MPC retained their easing bias (as per the last meeting minutes: “On the basis of the current evidence, Bank Rate is likely to continue on a gradual downward.”). They are still clear, therefore, on the direction of travel. What is much less certain is the pace and extent of that further easing.

Where does all that leave us? For a start we continue to see the MPC as reticent to ease policy a good deal of which emanates from concerns about wage growth but is also a function it approaching the end of its cutting cycle with the associated uncertainty as to where neutral/terminal Bank rate is. We’ve got this far into a preview of a MPR meeting without mentioning the new set of MPR forecasts. Partly that just reflects that in the post-Bernanke review world the forecasts, in particular, the central CPI fan chart projection, is being downplayed in terms of its significance for the policy decision. It also reflects in part that we the expected changes to the forecasts, the inflation forecasts in particular, to be mainly mechanical in nature rather than driven by changes in the condition assumptions.

Wells Fargo
The Bank of England (BoE) announces its latest monetary policy decision next week. While we expect policymakers to hold the policy rate at 3.75%, the accompanying statement will likely strike a neutral tone, preserving flexibility for a potential rate cut in March. At its December meeting, the BoE lowered rates by 25 bps and delivered dovish‑leaning guidance, noting that “on the basis of the current evidence, Bank Rate is likely to continue on a gradual downward path.” Since then, economic activity has surprised to the upside: November GDP exceeded expectations, December retail sales rose unexpectedly and PMIs have continued to trend higher. Inflation has broadly eased, though December’s rise to 3.4% year‑over‑year underscored the persistence of underlying price pressures. Wage growth, meanwhile, has softened meaningfully, suggesting further cooling in inflation dynamics ahead.

We remain comfortable with our baseline expectation of two 25 bps rate cuts from the BoE this year. Under our current forecast, the policy rate reaches its terminal level of 3.25% by Q2‑2026, with cuts occurring at an every‑other‑meeting cadence. Since we do not anticipate a rate cut next week, our attention will be focused on the forward guidance and accompanying communication.

MUFG
The pound has continued to strengthen at the start of this week ahead of tomorrow’s BoE policy meeting. EUR/GBP broke below support from the 200-day moving average at around 0.8650 on Monday. It is the first time that the pair has closed below the 2000- day moving average since April of last year as it moves further below the high of 0.8865 recorded on 14th November prior to the release of the Autumn Statement. The stronger pound reflects both a reduction in UK fiscal and political risks after the Budget was released, and building evidence of a pick-up in growth momentum in the UK as uncertainty has faded. The latest PMI surveys for January revealed that business confidence jumped to its highest level since April 2024.

Stronger growth momentum has encouraged market participants to push back the timing of the next BoE rate cut. The UK rate market currently expects the BoE to leave rates on hold until the April or June MPC meetings. Without an immediate catalyst to lower rates further, the BoE are likely to remain cautious over lowering rates further at the start of this year. At the last policy meeting, the BoE stated the “Bank Rate is likely to continue on a gradual downward path. But judgements around further policy easing will become a closer call”.

We continue to expect the BoE to lower rates further this year but recently pushed back our forecast for the timing of the next BoE rate cut from March to April. A development that is helping to provide more support for the pound in the near-term. However, the combination of labour market weakness and slowing inflation in the coming months should provide more encouragement for the BoE to resume rate cuts this year while the ECB leaves rates on hold. At the same time, UK political risks could increase around the local elections scheduled to be held in May. As a result, we are not convinced that the pound’s current upward momentum against the euro will be sustained beyond Q1.