The Bank of England’s decision to keep rates on hold at 3.75% will come as no surprise, but it still sends a clear message to markets. Policymakers remain in no rush to cut, preferring to wait for firmer evidence that inflation is heading sustainably back to the 2% target.
With inflation back up at 3.4% and wage growth still above 4%, the MPC is choosing caution over conviction. That tone is reflected in the wider economy too. For asset and wealth managers, the takeaway is a steady, rather than speedy, path to easing. Any cuts are likely to be gradual, offering some support but unlikely to transform the growth picture in the near term, with policy restraint set to shape markets well into 2026.
Industry experts respond to the announcement:
Ed Monk, Pensions and Investment Specialist at Fidelity International said:
“No rate cut today, but households shouldn’t have to wait too much longer for a reduction in their borrowing costs. A 5-4 vote to hold was closer than perhaps expected and signals MPC members are waiting for their moment to cut again.
“The Bank will be aware that one-off effects from April 2025 utility bill increases and tax rises fall out of the year-on-year comparisons for inflation over the coming months. Meanwhile, wage rises – which the Bank watches closely for signals of consumer spending power – have been weakening, further reducing the need for higher rates.
“Other signals from the labour market have also shown weakness, with fewer people on the payroll, more unemployed and more claiming out-of-work benefits. Markets ahead of the decision today were signalling one rate cut as being likely in the first half of 2026, with the potential for another before the year is out.
“We’ve seen evidence that investors are now rotating away from cash and cash-like investments as the rates edge lower. Cash funds were prominent in our best-seller lists throughout 2025, but the picture has shifted as we move through 2026, with investors moving money off the sidelines and into the stock market.”
Charlie Ambler, Co-Chief Investment Officer, Partner at wealth management firm Saltus, said:
“Having cut the base rate to its lowest level in almost three years in December, the Bank of England has now entered a more delicate phase of the easing cycle. Progress on services inflation and wage growth is key, and with headline inflation ticking higher last month, expectations that rates would be held at 3.75% have held true.
“Short term fluctuations in inflation data are unlikely to alter the broader direction of travel, but the Bank will be keen to reinforce its commitment to a gradual and measured approach to rate cuts. The full disinflationary impact of the tax measures announced in the Autumn Budget has yet to feed through, which means policymakers are likely to strike a cautious tone in their forward guidance. How confident the Bank sounds that inflationary pressures are being brought under control will be closely watched by markets.
“For investors, the backdrop remains one of uncertainty. Persistent inflation pressures and ongoing geopolitical risks continue to shape asset allocation decisions, reflected in sustained demand for both gold and government bonds. In this environment, the focus should remain firmly on quality and resilience, with disciplined portfolio construction and selective exposure to interest-rate-sensitive areas and UK equities where valuations remain compelling.”
Colin Bell, Founder and COO of Perenna, said:
“A hold will feel disappointing to some, but it reflects the reality borrowers are already living in: higher rates are no longer a temporary phase. They are here to stay as inflation remains sticky, and for many households, it is simply better to opt for long-term certainty now, than to keep holding out for a quarter-point cut later in the year that will make little difference to their monthly finances.
“It’s increasingly clear that rate decisions alone aren’t shifting the dial on homeownership. The average first-time buyer is now well into their thirties, and around a third of renters aged 25–44 say they don’t expect to ever own a home. That tells us the challenge isn’t whether the base rate has moved this month, but whether the system is actually opening the door rather than leaving people knocking.
“We need to stop treating rate cuts as the solution and focus instead on products and policy that give borrowers more control, flexibility and longer term stability. That’s where real progress will come from.”
Jeremy Batstone-Carr, European Strategist, Raymond James Investment Services, said:
“Having cut the UK base rate six times in the current cycle, rate setters on the Bank of England’s Monetary Policy Committee (MPC) were wary of opting for a seventh easing. However, with inflation widely expected to fall sharply from April and settle at lower levels, the door certainly remains open to cuts in the near future.
“Economic data released since December’s rate cut generally confirm that near-term caution is warranted. CPI inflation has nudged up, and a further softening in the labour market and rebound in economic activity is expected. However, persistently sticky wage data likely weighed on the minds of the committee’s more hawkish members.
“Beyond the rate decision, focus is also on updated economic forecasts. Whilst likely guarded in relation to the near-term outlook for pay growth, estimates will surely show that CPI inflation will hit its 2% target over time. The key moment in the immediate future will be confirmation that regulatory and other price adjustments from April 2025 will drop out of annualised calculations this year. This should result in CPI inflation dipping below target sooner than the Bank anticipates, providing scope for easier policy in months to come.”
Laurence Booth, head of capital markets at CMC Markets, said:
“The Bank of England’s decision to hold interest rates has effectively pressed the ‘pause’ button, and is the right call for long-term stability.
“Despite the gradual rate cuts seen last year, the surprise rise in inflation to 3.4% last month appears to have unsettled the more hawkish members of the BoE’s MPC. However, mixed signals from the UK economy suggest further rate cuts are still likely in the coming months.
“By holding steady at 3.75%, the MPC is choosing to buy time, rather than risk reigniting price growth with a premature cut.
“Looking ahead, market focus now turns to the coming months. Sterling is expected to remain sensitive to the Bank’s ‘higher-for-longer’ stance as we look toward April, which now appears to be the next window for the MPC to cut rates.”
Derrick Dunne, CEO of YOU Asset Management, said:
“This decision from the MPC is no surprise given the unexpected inflation figures in January which suggest the fight against inflation is not over. However, the choice to hold rates where they are is evidently conservative given the realities of the economy, which is showing lacklustre economic growth and rising concerns about the labour market. In holding rates, the bank has chosen to focus on the headline rate and ignore wider economic concerns – most pressing of which is the labour market.
“There are now two potential paths, given the market still expects at least two cuts this year. Either we get another ‘soft landing’ with inflation normalising and rates stepping lower while the labour market stabilises. Or, unemployment accelerates and GDP continues to flatline, forcing panicked cuts in succession.
“The labour market is now the bellwether for the economy. The problem with this is that labour market data is very backward looking. This means we could already be seeing a painful jobs correction happening and not yet fully realise the scale of the problem. Failure to account for labour market weakness now could lead to panic cuts by the MPC later.
“Anyone unsure what this could mean for their long-term financial plans should consider consulting with a financial planner.”
Patrick Farrell, Group Chief Investment Officer at Charles Stanley, said:
“The Bank’s tone highlights how cautiously policymakers are approaching this stage of the cycle. 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. There’s no set timetable, and each move now depends on whether upcoming data gives the Bank enough confidence to act.
“For investors, this uncertainty is likely to frame the year ahead. Growth isn’t strong enough to remove doubts, nor weak enough to force decisive action, leaving the path for rates open-ended. Instead of the smoother, more predictable cutting cycles of the past, we may see a more uneven journey. In this setting, staying adaptable, diversifying effectively, and being prepared for a range of outcomes will be essential for investors as global policy shifts unfold.”
Susannah Streeter, Chief Investment Strategist, Wealth Club, said:
“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. 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. The latest PMI snapshot showed activity accelerating with Budget blues being cast aside.
“Plus, with headline inflation ramping up at the last count, and wage growth still uncomfortable, it’s not a clement environment for interest rate cuts. Still, it was a closer call than expected, and it puts a cut in March still very much in the picture. 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.
“But these are volatile times, with the overall outlook in a state of flux, given ongoing geopolitical tensions, erratic US trade policy, and a tech sell off roiling markets. So, the Bank’s decision makers will still want more clarity on what could be ahead, before tinkering with borrowing costs again.”
Simeon Willis, Chief Investment Officer at XPS Investment said:
“The Bank’s decision to hold rates was firmly in line with market expectations and is unlikely, in itself, to have a material impact on pension scheme investors. The more important story for schemes remains the longer-term direction of travel, rather than today’s pause. Whilst December’s CPI rose to 3.4% from 3.2%, this had in part been anticipated already due to Tobacco duty and rising airfares.
“That said, longer-term inflation expectations implied by the gilts market edged slightly higher over January. For defined benefit schemes, this is relevant, as even modest increases in long-dated inflation expectations can feed through into liability values, where they are linked to inflation.”
Jonathon Marchant, Fund Manager at Mattioli Woods said:
“The Bank of England held interest rates at today’s meeting, which was expected by the market. While headline CPI inflation rose to 3.4% in January, moderating wage pressures suggest underlying inflationary dynamics may be easing. Private sector wage growth decelerated to 3.6%, while unemployment reached 5.1%, its highest level since early 2021. However, even when combined with confidence around inflation hitting 2% by the middle of the year, this was not enough to persuade the Monetary Policy Committee (MPC) to cut interest rates further.
Members will point to encouraging signs of economic momentum to support the hold decision. Composite PMI surged to 53.9, marking the fastest acceleration in business activity for two years, whilst November GDP expanded 0.3%, exceeding expectations. Retail sales also surprised positively, rising 0.4% after two consecutive monthly declines. However, we know consumers and businesses delayed purchasing decisions in the wake of the budget. Therefore, it is possible that some of the more positive data in January is an unwinding of pent-up demand and not necessarily a fundamental step change in activity.
The MPC continues to adopt a cautious approach, but risks falling behind the curve. Despite significant base effects coming through over the next two quarters, members appear unwilling to look through shorter term data. The 5-4 split highlights that the decision to hold was closely contested and suggests a further cut may come in spring.”
Esther Watt, bond strategist at wealth management firm Evelyn Partners, said:
“The hold was widely anticipated and 98% priced in by the markets but there was some surprise dovishness in the vote. Dhingra, Taylor, Ramsden and Breeden all voting for a 25bp cut, and it was only Governor Andrew Bailey’s swing vote that decided the hold 5-4, when a 7-2 call had been expected by analysts.
“Mr Bailey cautioned that “judgements around further policy easing will become a closer call” and it’s hard to see how you get a closer call than 5-4 on the MPC without cutting rates. The odds on a March cut have shortened significantly in the light of the vote and some downbeat updates to the BoE’s quarterly updated forecast today.
“In the seven weeks since the last MPC meeting, economic data has been mixed. While the final read of the third quarter GDP print was confirmed at 1.3%, the labour market continued to show signs of weakness with unemployment holding at 5.1% in the three months to November (5.1% prior, 5.1% surveyed) and private earnings, at 3.6% (3.9% prior, 3.7% surveyed), continued their downward trend.
“Consumer prices index inflation, on the other hand, surprised to the upside, at 3.4% (3.2% prior, 3.3% expected), as goods and services inflation both came in slightly higher than anticipated. While market commentators widely expected – following the Autumn Budget – inflation to be revised down in today’s updated forecasts, the outlook for GDP was also revised down and unemployment rate up.
“That soft outlook on the real economy explains the unexpectedly even vote, with the four doves feeling “upside risks to inflation have diminished.”
Salman Ahmed, global head of macro and strategic asset allocation at Fidelity International, said:
“The European Central Bank (ECB) left interest rates and forward guidance unchanged as expected, with little shift from their narrative that things are currently in a good place from their perspective.
“On the economic outlook, the ECB have taken solace in solid Q4 growth prints to reemphasise their message of growth resilience, but we see some risks of undershooting inflation in the latest January print being sustained.
“While rates are likely to be held in the near-term we still see clear risks that undershooting inflation may prove to be persistent, prompting action by the ECB over the course of the year. The recent fall in services inflation is consistent with expected wage disinflation, while trade diversion from China also remains prominent in shaping our view of downside risks to inflation alongside a further euro appreciation.On the other side, the ECB will be monitoring any persistence in commodity price increases.
“Moreover, we see risks to monetary policy transmission through a tightening of financing conditions – with recent ECB surveys and bank interest rate data pointing to tighter firm financing conditions. This may lead to the ECB considering if action is needed to keep the broader financing environment from becoming unduly restrictive.”
Adam Ruddle, Chief Investment Officer at LV=, said:
“The Bank of England holding rates at 3.75% was widely expected given current market conditions. Inflation continues to ease but remains well above the Bank’s 2% target, at 3.4%, and is forecast to fall further over the coming months. At the same time, unemployment is rising and economic momentum is weak, with UK GDP growth at a modest 1.3% year on year.
“Despite these pressures, we are approaching the latter stages of the rate‑cutting cycle, with interest rates moving closer to a sustainable equilibrium. We will be paying close attention to signals on the timing and scale of any further cuts.
“Markets currently forecast just one or two additional cuts over 2026, compared with four in 2025. While this will be disappointing for borrowers who were hoping for faster relief, a period of rate stability could help provide reassurance. According to LV’s research, nearly three in four UK adults say economic uncertainty influences their day-to-day financial decisions, so holding rates may offer some security as we move further into 2026.”
