On 5 Feb 2026 the Monetary Policy Committee left Bank rate unchanged at 3.75%, as widely expected. At 11.59am that day, one minute before the decision was announced, financial markets were pricing in a 19% chance of the next rate cut happening in March 2026, this probability having steadily fallen throughout the second half of January. Shortly after the announcement, this had rocketed to around a 65% likelihood and stands at almost 71% at the time of writing.
What changed? The MPC vote was 5-4 in favour of maintaining rates, with the 4 votes for an immediate cut to 3.5% a dovish surprise compared to expectations of a 7-2 split. So there were double the members who thought rates needed to be lower than had been anticipated, with perma-doves Swati Dhingra and Alan Taylor being joined by Sarah Breeden and Dave Ramsden.
It was a Monetary Policy Report month, meaning updates to the Bank’s forecasts for growth and inflation. GDP growth was downgraded in the near-term but CPI inflation is now expected to fall back to around the 2% target from April, much sooner than had been predicted back in November 2025. This mainly reflects developments in energy prices, including the impact of measures announced in the UK Budget 2025.
The split in the committee’s recent votes has largely reflected the individual member’s views on inflation and the likely persistence thereof, some convinced that disinflation is well on its way and others concerned about inflationary pressure being embedded in the economy, with companies and employees more easily able to raise prices and wages respectively. It seems the former argument is gradually winning over more members, mostly based on new analysis rather than a big shift in the data.
Not only did the vote itself show the MPC shifting closer to further rate cuts in the near term, but the views of some of those voting for no change this time around were also important in bringing forward expectations of lower rates. Having recently been the ‘floating voter’ – moving things in favour of a hold in November, a cut in December and a hold in February – BoE governor Andrew Bailey seems the most likely candidate to tip the scales in March, setting out “…the risks from inflation persistence appear to have continued to reduce. I therefore see scope for some further easing of policy”. Comments made by Bailey in the post-announcement press conference suggested he is focused on inflation expectations. Catherine L Mann, previously something of a hawk, also signalled the possibility of joining the cutting camp soon, stating that “…analysis and current developments have moved the appropriate time for a cut in Bank Rate closer”.
It’s fair to say the extremes of the Committee are still fairly wide, though – Huw Pill thinks rates have been cut too far already, while others such as Taylor are explicit in calling for 3% Bank Rate sooner rather than later.
Arlingclose’s view remains that declining wage growth, as the labour market continues to ease, and a reduction in household inflation expectations will mean further monetary easing is appropriate. Our forecast is for the next rate cut to come in March, a view we set out last year when consensus Bank Rate predictions were for a move later in 2026. While it was nice to see more of the Committee aligning with this outlook, nothing is a done deal yet, so the economic data between now and March will be key.
If you’d like to learn more about our macroeconomic and interest rate forecasting services, please contact us on info@arlingclose.com.
11/02/2026
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