BoE Maintains Rates in Dovish, Narrow 5-4 Vote

The Bank of England kept Bank Rate at 3.75% in a tight 5–4 vote, with Governor Andrew Bailey acting again as the swing voter. The outcome was more dovish than markets had anticipated but in line with our expectations. The BoE signalled room for further rate cuts this year but did not point to a ny specific meeting. The BoE expects inflation to move toward the 2% target by spring , helped by the Budget, though the decline must be durable. While inflation persistence has eased somewhat, some MPC members advocate a prolonged restraint. Concurrently, BoE inflation expectations project inflation dipping below 2% in one year and again in two years. The BoE’s 2026 GDP outlook was revised to 0.9% from 1.2% with a later rebound, and unemployment rate is projected to peak at around 5.3%. Wage growth is expected to slow down and could dip below the level needed to sustain 2% inflation. We think that this could possibly require looser monetary policy ahead than currently priced in by the markets (-46bps by year end) . We continue to expect two rate cuts this year, with a still significant though smaller likelihood of three cuts. Today’s narrow vote keeps March as a plausible window for a rate cut, with April viewed as the likeliest option. Meanwhile, markets still price in only about 20 basis points of cuts in April.