Interest rates live: Bank of England announces decision in first vote of 2026 after inflation rises – UK Times

No enormous surprise at the hold vote – the MPC have been extremely cautious about cutting over the last year as inflation slowly comes down, for fear of igniting again.

However, the vote was closer than many thought, at just 5-4 in favour of the hold. They have held firm against a backdrop of political pressure with Rachel Reeves’ borrowing costs, economic distress signals amid no national growth and business leaders screaming for rates cuts, never signalling that more than one cut per quarter was ever likely to come.

This year, it could be even lower, as we head toward a neutral rate: the point where interest rates can support a growing economy and keep inflation in check.

It’s very likely to be way higher than we saw for a decade or more post-financial crisis, when rates were barely above zero. Some analysts think 3 per cent will be the bottom line; others think slightly higher.

Either way, we may or may not reach it this year with only around two cuts expected – the next chance for one will be on 19 March and perhaps the markets will expect that to now be a cut, given how close this vote turned out to be.

– The Independent’s Business and Money Editor Karl Matchett

The base rate – now at 3.75 per cent after being cut four times last year – impacts business, consumers and taxpayers through everything from mortgages to loans and savings, so what do experts foresee, both this week and beyond?

The Independent’s Business and Money Editor Karl Matchett reports:

The Monetary Policy Committee reviews and sets the UK’s base interest rate eight times a year, usually every six weeks.

When are interest rates going to be reviewed this year?

• Thursday 5 February
• Thursday 19 March
• Thursday 30 April
• Thursday 18 June
• Thursday 30 July
• Thursday 17 September
• Thursday 5 November
• Thursday 17 December

Homeowners looking for a new mortgage deal will find a range of attractive offers available right now, though experts caution that the ‘cheapest’ rate is rarely the most suitable.

Since the Bank of England’s base rate cut to 3.75 per cent in December 2025, there’s been a significant price war among high-street lenders for the start of 2026 – but financial experts stress getting the lowest interest rate doesn’t necessarily mean you’re getting the best overall deal.

“For those searching for mortgages independently, it’s easy to be drawn in by the headline interest rate,” Rachel Geddes, strategic lender relationship director at the Mortgage Advice Bureau, said.

“However, the ‘cheapest’ rate is rarely the most suitable deal.

“The most common pitfall for DIY searchers is the fee-to-rate ratio. A lender might offer a highly competitive rate, but if it comes with a costly arrangement fee, you could end up paying more over the fixed term than you would with a slightly higher rate and no fee.”

As markets await the Bank of England’s inflation rates vote, the focus will be less on the decision and more on guidance, the vote split, and governor Andrew Bailey’s tone, a senior market analyst has said.

Daniela Hathor from online trading platform Capital.com, said the vote split will be closely monitored, and markets will be looking for any rise in the number of members voting for a cut, which could suggest that the MPC is edging closer to further easing rates.

“A shift toward a more divided committee would likely be interpreted as a dovish undercurrent, even if the headline decision remains unchanged.

“Conversely, a broadly unified vote to hold rates steady would suggest the BoE remains uncomfortable with inflation dynamics, particularly in the labour market, and is willing to maintain restrictive policy for longer,” she said.

British borrowing costs have risen today as investors question whether Keir Starmer can survive his handling of former UK ambassador to the US Peter Mandelson and his links to paedophile Jeffrey Epstein.

Longer-dated British government bond yields rose for a second day on Thursday, while European borrowing costs remained flat.

Ten-year gilt yields rose to the highest since 20 November, up about 3 basis points to 4.6 per cent and were last up around 4 bps.

Thirty-year bond yields touched the highest since Budget Day on 26 November, also up around 3 bps at 5.4 per cent.

As for that 2% inflation target, the chart below shows we are generally headed back towards it, but still with work to do.

This is UK CPI – which was at 3.4% for December.

The Independent’s Business and Money Editor Karl Matchett:

The link between interest rates and inflation is a complex one, and not the only factor in the slightest which impacts the MPC’s decision, but it’s an important part of the puzzle.

In brief and simple terms, when interest rates are down, people tend to have more money to spend because mortgage repayments are lower, and it’s cheaper to borrow money for other loans as repayments are lower – so they are more likely to spend on bigger-ticket items.

That means businesses have more income, so are more likely to invest in their own projects including hiring personnel, which again leads to more money in pockets…but it also means demand is higher for goods and services, which can push prices higher. That is, of course, exactly what inflation is: prices going up.

When interest rates are high the opposite happens: less borrowing, higher costs, lower spending, lowered demand. So striking the balance between all this is part of what goes into deciding what level interest rates should be at, to support a growing economy – but not at the expense of high inflation.

There is a government-set 2% target for inflation, which is seen as ideal to grow an economy without goods and services becoming overly expensive too quickly for the majority of the population.

If interest rates hold today, as is widely expected, it will be good news for savers, as returns on easy-access and variable accounts are unlikely to immediately fall.

Maike Currie, VP of personal finance at PensionBee, said: “It’s a big week for central banks, with interest rate decisions from the Bank of England and the European Central Bank, alongside fresh scrutiny of the US Federal Reserve following last week’s nomination announcement of a new Fed Chair.”

The pension provider said that despite the changes announced to the Cash ISA in the November Budget, which saw the allowance for individuals under 65 reduced from £20,000 to £12,000 from April 2027, savers were still stashing record amounts into their Cash ISA.

According to the Bank of England’s latest money and credit report in December, savers added £5.2 billion to cash ISAs and £5.1 billion to interest-paying easy-access accounts.

Tamsin Powell, Consumer Finance Expert at Creditspring, said: “Anyone with cash set aside can still make their money work harder while inflation continues to cool.

“For households that have been able to build even a small buffer, this period of stability offers a chance to pause, review finances, and plan ahead with a bit more confidence.”