The Bank of England has kept interest rates unchanged at 3.75%, with policymakers pointing to energy price reductions starting in April as a key factor enabling future rate cuts. These price decreases are expected to significantly reduce inflationary pressures.
The monetary policy committee’s 5-4 vote demonstrated substantial internal support for easing, with four members already favoring a cut. This narrow decision follows six previous rate reductions since mid-2024 and indicates that further cuts are likely as energy prices fall.
Governor Andrew Bailey highlighted the improving inflation outlook, projecting it will return to around 2% by spring. He noted that government measures, particularly those affecting energy costs, are contributing to this positive trajectory. While rates were held this time, Bailey suggested that conditions should permit additional cuts during the year.
Yael Selfin, chief economist at KPMG, specifically highlighted the role of energy prices in the inflation forecast. She stated that “the downward revision in inflation largely reflects the impact of the measures announced in the autumn budget, which will see energy prices ease from April onwards.” This expert analysis confirms the significance of the government’s energy policy interventions.
Chancellor Rachel Reeves’s budget included cuts to utility bills taking effect in April, which will directly reduce household energy costs. Combined with a rail fare freeze also starting in April, these measures are expected to drive inflation down to 2.1% by mid-2026, compared to 3.4% in December. Economic growth is forecast at just 0.9% this year, down from 1.2% previously, while unemployment is expected to reach 5.3%, creating conditions favorable for monetary easing.