Bank of England Maintains 3.75% Rate as Chancellor Reeves Claims UK Will “Turn the Page” on Inflation

The Bank of England has kept interest rates at 3.75%, supporting Chancellor Rachel Reeves’s assertion that this year will see the UK “turn the page” on inflation. The decision comes as policymakers express growing confidence that the painful surge in prices is finally coming under control.
The monetary policy committee’s 5-4 vote revealed significant debate about whether to cut rates immediately or wait for additional confirmation that inflation is declining sustainably. Four members supported an immediate reduction, nearly matching the five who preferred to hold. This close division follows six rate cuts since mid-2024 and indicates that further easing is highly likely in the coming months.
Governor Andrew Bailey highlighted the dramatic improvement in the inflation outlook, projecting it will fall to around 2% by spring. This represents a return to the target level after the surge in prices that followed the reopening of the economy after pandemic shutdowns and Russia’s invasion of Ukraine. Bailey suggested that successfully maintaining low inflation should create opportunities for additional rate cuts during the year.
Economic growth forecasts paint a less optimistic picture, with GDP now expected to expand by just 0.9% this year, down from 1.2% previously projected. The Bank attributes some of this weakness to higher business costs, including increased employer national insurance contributions and the rising minimum wage. These factors have contributed to flat employment growth over the past year and are expected to push unemployment to 5.3%.
The chancellor’s budget package is central to the improved inflation outlook. Reeves has introduced measures including utility bill cuts and rail fare freezes, both effective from April, designed to ease cost-of-living pressures on households. These policies are expected to drive inflation down to 2.1% by the second quarter of 2026, compared to 3.4% in December. This dramatic decline supports her claim that the UK is finally moving past the inflation crisis that has dominated economic policy in recent years.