Will interest rates go down this week? Bank of England’s key factors and 2026 predictions
The Bank of England’s (BoE) next meeting to set interest rates will be held on Thursday, February 5, and all eyes will be on the Monetary Policy Committee (MPC) and whether its members will continue to cut interest rates.
The base rate, now 3.75 per cent after being cut four times last year, affects businesses, consumers and taxpayers on everything from mortgages to loans and savings; So what do experts predict both this week and beyond?
Will interest rates be reduced?
Rates were cut to their lowest point in almost three years just before Christmas, but back-to-back cuts are another matter.
We haven’t seen this from the BoE since the post-financial crisis days of 2008, when bank rates fell from 5 percent to 0.5 percent in about five months.
It is also true that, although interest rates will be close to zero for a long time from now on, most analysts and economists now expect the “neutral interest rate” (how low the bank will cut interest and then leave it in an environment where the economy continues to grow but inflation is suppressed) to be higher this time, perhaps 3 percent.
This means only three more outages in total could come during this cycle, and as we get closer to that rate, outages could become more spaced out.
Considering that we’ve just had a cut, that inflation data from two weeks ago showed an unexpected rise, and that we still have higher wage growth than the BoE would ideally want, it’s unlikely we’ll see another cut in February.
But interest rate decisions take into account many factors over a long period of time, as well as expectations of what will happen next, and 2026 looks challenging again on both counts.
In addition to the domestic situation where inflation will remain high for extended periods of time, we face broader political uncertainty domestically, with Donald Trump making military or economic threats to the nation, as well as commodities such as gold and silver being more volatile than usual.
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“Growth accelerated in November and surveys suggest a strong start to the year, which will be enough to keep the MPC on hold despite continued easing in the labor market,” said Thomas Pugh, chief economist at RSM UK. “The guidance will likely continue to indicate that further rate cuts are likely but will become increasingly cautious about the timing and number of additional rate cuts needed.”
Barclays, meanwhile, doubled down on the meeting’s “cautious tone” and suggested a widening 7-2 split from nine votes while agreeing to postpone the outcome vote.
“Given that data has generally developed in line with MPC’s forecasts and that December’s communication expressed a trend to slow the pace of cuts as Bank Rates approach neutral, we believe the majority of MPC members will prefer to wait,” analyst Jack Meaning said in a note.
Elsewhere, it is worth remembering that many products, particularly mortgages, are priced using future interest rate expectations (swap rates), so changes in that market can already be taken into account.
But for savers, whether or not there’s an immediate discount on variable rates, it’s always worth checking the best offers on the market to make sure your money is earning you as much as possible.
Influential factors
The MPC has nine members and their votes decide whether to lower, raise or keep the base rate the same.
Factors MPC members will examine will include jobs and wages data, the level of inflation across the UK and economic growth.
High inflation is a reason to keep interest rates high because it can deter businesses from investing in new projects or hiring; These are the things that increase earnings and spending power. Conversely, fewer jobs and lower wages mean less spending power and lower demand; This helps prevent further price increases.
The latest key data showed wage growth slowing and unemployment rising throughout the year. These are factors that can cause interest rates to fall; There are also external factors that can affect the UK over which the government and the Bank of England may have little or no control.
What will happen for the rest of 2026?
The picture gets darker as we look into the future and can change rapidly, as we saw last year with tariffs, budget uncertainty, oil shocks and more.
Sanjay Raja, Deutsche Bank’s chief economist in the UK, has previously said that “with the economy now on a firmer footing than expected, the momentum to accelerate rate cuts is likely to be lower” – in other words, there is less pressure on the BoE to cut rates to support businesses.
“Further forward, the MPC will become more cautious about future rate cuts as it approaches neutral; we only expect one rate cut in April this year,” RMS’s Pugh added. “However, if the labor market continues to weaken and that weakness translates into a faster-than-expected slowdown in wage growth, the MPC may be persuaded to make further cuts.”
Markets are divided for now, with one or two disruptions priced in this year.
The next MPC voting dates will be on March 19 and April 30.
