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.
n
The decision reflected modest confidence that inflation is returning durably to the 2% target, balanced against ongoing uncertainty about services inflation and wage growth.
n
The Inflation Picture
n
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.
n
The Bank's forecast has inflation returning to target in mid-2026 before potentially dipping below 2% briefly if energy prices continue to fall.
n
What Markets Are Pricing
n
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.
n
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.
n
Upside and Downside Risks
n
**Upside risks (rates higher for longer)**: A US tariff escalation reigniting goods price inflation; wage growth remaining sticky; geopolitical energy price shock.
n
**Downside risks (faster cutting)**: A sharper-than-expected slowdown in economic activity; unemployment rising more quickly; global deflationary pressures from slower Chinese demand.
n
What It Means for Borrowers and Savers
n
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.
n
