LONDON, Feb. 5, 2026, 08:30 GMT
The Bank of England is set to hold its benchmark Bank Rate steady at 3.75% on Thursday. The policy announcement is scheduled for 1200 GMT, followed by a press conference 30 minutes later. The previous rate cut in December passed by a slim 5-4 margin. Investors have now pushed bets on the next move into the second quarter, even though Governor Andrew Bailey has suggested inflation could return to the 2% target as soon as April or May. “Despite sluggish growth and a weakening labour market, the BoE will want further evidence that inflation is falling towards its 2% target,” said James Mashiter, a fixed-income portfolio manager at SEI. Reuters
Inflation remains at 3.4%, still above target, while signs of economic pickup are emerging—creating a mix that keeps policymakers on edge. “Early data for 2026 suggest demand is stronger and inflation more persistent than we expected,” said Andrew Wishart, senior UK economist at Berenberg Bank. Lowering rates could boost growth by reducing borrowing costs, but if demand outpaces supply, it risks fueling further price pressures. AP News
Markets are already showing subtle shifts. Sterling climbed to a fresh five-month peak against the euro on Wednesday, with the single currency sliding to 86.15 pence. The U.S. dollar eased against the euro as a delay in U.S. jobs data—caused by a partial government shutdown—added uncertainty about the Federal Reserve’s next move. “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,” said Lee Hardman, senior currency economist at MUFG. Paul Mackel, global head of forex research at HSBC, noted a pause at 3.75% was widely expected, with traders pricing in about 35 basis points of BoE cuts by year-end—basis points being hundredths of a percentage point. Reuters
Business surveys shed light on why the BoE remains cautious. S&P Global’s UK services PMI — with readings above 50 indicating growth — climbed to 54.0 in January from 51.4 in December, marking its highest level since August 2025. Tim Moore, economics director at S&P Global Market Intelligence, described it as “an encouraging start to 2026,” but noted that hiring declined again as companies grappled with rising payroll expenses. The survey also revealed the fastest rise in prices charged by firms since August, a key metric under the BoE’s watch. Reuters
UK stocks are pricing in a potential rate cut down the line, even as the BoE hints at no clear direction today. The FTSE 100 hit a fresh record on Wednesday, climbing 0.85% to 10,402.34 points, with traders on edge ahead of the central bank’s announcement. Axel Rudolph, senior financial analyst at IG, noted that “the software sector’s recent two-day selloff appears to be driven by a rotation out of high-multiple growth names … into value-oriented stocks.” Reuters
The mood isn’t entirely one-directional. On Tuesday, the FTSE 100 slipped back from a record high as an AI-driven selloff hit tech and data stocks. Swissquote Bank analyst Ipek Ozkardeskaya noted that global risk appetite remains “not fully restored” following recent swings in metals markets. Meanwhile, UK grocery inflation slowed to 4.0% in the four weeks ending January 25, marking its lowest level since April—a key figure investors and the BoE are watching for signs of wider inflation trends. Reuters
The next move remains uncertain. Inflation hit 3.4% in December, the highest among the Group of Seven, Reuters reported. Now, markets are pricing in a Bank of England rate cut only at the May meeting. “Markets now think the Bank of England will wait until probably the May policy meeting before cutting rates further,” said MUFG’s Hardman, noting that the delayed cut expectations are supporting the pound. With few major UK data releases until mid- to late February on growth, jobs, and inflation, the BoE’s decision today relies heavily on forecasts and tone rather than fresh figures. Reuters
The forecasts are due at noon. At 12pm, the Bank of England will release its quarterly Monetary Policy Report, followed by a press conference streamed at 12.30pm. This session will detail the analysis and inflation projections driving the Monetary Policy Committee’s rate decisions.
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