The Bank of England has hit the pause button, but just barely. In a decision that came down to the wire, the Monetary Policy Committee (MPC) voted 5-4 to hold interest rates at 3.75%, resisting the pressure for an immediate cut despite encouraging signs on the inflation front.

This "hawkish hold" signals a cautious optimism from Threadneedle Street. Governor Andrew Bailey, speaking after the decision, struck a balanced tone, noting that while the economy has taken a "big step forward," the job is not yet finished. With inflation currently at 3.4% and expected to hit the magical 2% target by Spring, the stage is set for a pivot. However, the Bank is clearly waiting for concrete evidence that price stability is locked in before loosening the reins further.

The Split Decision

The 5-4 vote split reveals a deep division within the committee. Four members were ready to cut rates immediately, arguing that the economy needs a stimulus now. Their dissent underscores the fragility of the UK’s economic recovery, with growth forecasts for 2026 downgraded to a sluggish 0.9% and unemployment expected to tick up to 5.3%.

For mortgage holders and businesses, the decision is a mixed bag. Rates remain at their lowest in three years, but the relief of a further cut has been deferred. The Bank’s guidance, however, was explicit: "future cuts are likely" if the economy evolves as expected.

• Inflation Outlook: The Bank is banking on government interventions in energy bills to accelerate the drop in inflation, predicting a return to target months earlier than previously thought.
• The Bailey Doctrine: "We need to be sure inflation will stay at 2%," Bailey emphasized, prioritizing long-term stability over short-term gratification.

Global Ripples

The decision reverberates beyond London. As a key global financial hub, the Bank of England’s stance sets a tone for other central banks navigating the post-inflationary landscape. The message is clear: the war on inflation is won, but the peace is fragile.

As the UK braces for a year of slow growth and rising joblessness, the pressure on the Bank to cut rates will intensify. For now, the rate holds at 3.75%, a precarious balance on a tightrope walk between recession and recovery.