The Bank of England's Monetary Policy Committee (MPC) cut rates by 0.25 percentage points at its March meeting, taking the Bank Rate to 3.75%. The vote was 7-2 in favour, with two members preferring to hold.
The decision reflected modest confidence that inflation is returning durably to the 2% target, balanced against ongoing uncertainty about services inflation and wage growth.
The Inflation Picture
CPI inflation stands at 2.8% — above target but substantially below the 11.1% peak of October 2022. Services inflation, which the Bank watches most closely as a guide to domestically generated price pressure, is at 5.4% — still elevated.
The Bank's forecast has inflation returning to target in mid-2026 before potentially dipping below 2% briefly if energy prices continue to fall.
What Markets Are Pricing
Interest rate futures markets imply the Bank Rate falling to around 3.25% by the end of 2026 — two further cuts of 0.25 percentage points. The May and August meetings are most commonly cited as the likely timings.
Market expectations can change rapidly. This time last year, markets were pricing in four cuts in 2026; the expectation has been revised down twice since then.
Upside and Downside Risks
Upside risks (rates higher for longer): A US tariff escalation reigniting goods price inflation; wage growth remaining sticky; geopolitical energy price shock.
Downside risks (faster cutting): A sharper-than-expected slowdown in economic activity; unemployment rising more quickly; global deflationary pressures from slower Chinese demand.
What It Means for Borrowers and Savers
Each 0.25 percentage point cut reduces monthly payments on a £200,000 tracker mortgage by around £25. For savers, each cut reduces returns on easy access accounts by roughly the same margin. Lock in savings rates now while they remain attractive.
