Business

What to expect from the UK’s interest rate decision this week

Staff Writer 2 February 2026 3 min read

Keeping the Bank Rate unchanged at 3.75% at next week’s meeting looks a near-certainty, say analysts at EY. The group forecasts that seven of the nine Monetary Policy Committee (MPC) members are expected to vote in favour of no change, with two preferring another 25bps cut.

“Some of the MPC doves that favoured a cut in December still harbour some concerns around sticky wage growth and inflation. Although the data over the last few weeks has tilted in a slightly dovish direction, this does not appear to be anywhere near enough to prompt a majority of the MPC to favour back-to-back cuts,” says Matt Swannell (Chief Economic Advisor to the EY ITEM Club).

He notes that seven of nine rate setters seem likely to favour keeping Bank Rate unchanged, with two preferring to lower interest rates by 25bps.  

“On the one hand, a re-emergence of labour market slack and cooling pay growth will have slightly reduced the risk of sticky inflation in the view of some members of the Committee.

“The deterioration in the jobs market has re-accelerated in recent months after appearing to have bottomed out over the summer, while official estimates of wage growth have cooled more quickly than the Bank of England forecast three months ago. On the other hand, most rate setters are still wary of 2026 pay settlements, which early indicators suggest will be above target-consistent rates.”

The Bank of England’s survey of corporate decision-makers suggests this year’s pay rises will be 3.7%, and intelligence gained from its regional Agents’ network points to an average pay settlement of 3.5%.

Given most members of the MPC will still have concerns that elevated earnings growth will keep inflation above target, the Committee will probably wait and see how the early year settlement season plays out before adjusting rates further, Swannell said.

“The MPC is maintaining a watching brief and probably won’t offer any explicit guidance that commits to the timing and extent of future rate cuts. However, the MPC is likely to indicate that Bank Rate is approaching a neutral setting and that the cutting cycle is approaching an end.

“Its near-term inflation forecast will likely to fall to 2% in the middle of this year as the cost-of-living measures announced at the Autumn Budget come into effect. But its inflation projection could still settle around the 2% target in two to three years’ time, indicating that in the MPC’s view, one or two carefully judged cuts may still be delivered.”