- 2026 could be a year of prosaic inaction on monetary policy
- Bank still in wait and see mode
- No rate cuts expected until at least April, and that may be it for the year
Laith Khalaf, head of investment analysis at AJ Bell, comments:
“It’s extremely unlikely the Bank of England is going to do anything but hold interest rates where they are at its February meeting. The Bank reduced rates in December and has clearly indicated it wants to adjust policy gradually, so consecutive cuts are pretty much unthinkable in the current economic environment.
“The last time we got consecutive movement on rates was in the summer of 2023, when the Bank was scurrying to hike interest rates in the face of rampant inflation. The last time we had a consecutive cut was in the first quarter of 2020 when the Covid pandemic looked like it was going to decimate the economy. Nothing that dramatic is happening right now which justifies quick fire rate cuts.
“The labour market is showing signs of cooling, and private sector wage growth has been reined in. Inflation picked up in December, but largely due to one-off factors which the Bank of England will look through. That said, the last time the committee met the decision to cut rates was a close one, with four out of the nine policy makers preferring to keep rates on hold. That speaks of lingering inflation fears within the committee.
“The market thinks we won’t get an interest rate cut until April at the earliest, and when it comes, that may be it for this year. April will be a key month because the government’s energy price subsidy will kick in, and inflation should fall back substantially. While the Bank of England is more focused on medium-term inflation expectations, it is inevitably easier to be a bit more dovish when inflation begins with a two rather than a three.
“It’s not a good idea to peer too far into the future when it comes to interest rates, especially in such an erratic global economic environment. But as things stand 2026 looks like it could be a year of prosaic inaction for monetary policy, with a scant number of clips to populate a highlight reel.”
