Bank of England holds rates at 3.75% as MPC battles to reconcile mixed economic signals

Faced with a mixed bag of economic signals, the Bank of England’s Monetary Policy Committee (MPC) elected to hold interest rates at 3.75% today.

This decision was largely anticipated by markets, particularly after December’s rate cut was accompanied by clear guidance that the pace of monetary easing could slow. However, perhaps surprisingly, the vote was finely balanced, with a 5–4 split highlighting the Committee’s differing views on the balance between weak labour data versus improving activity and inflationary pressures.

Anais Caldwell-Jones, Principal in LCP’s investment team, commented: “The MPC’s decision to hold rates at 3.75% comes at a time when the UK economy has yet to find a clear direction. While unemployment has risen to 5.1%, strengthening the case for policy support, inflation remains elevated and activity indicators have shown modest improvement, with November GDP growth and early‑year survey data pointing to slightly better momentum.”

She added:

“Today’s announcement underlines the balance of views on the MPC that inflation is not yet fully under control. Looking ahead, the decision to hold rates today gives the Bank of England flexibility to cut in the coming months, should labour market conditions continue to weaken and evidence emerge that inflation is on a sustainable downward trajectory.”