Bank of England Holds at 3.75% as KPMG Economist Credits Budget for Inflation Revision

The Bank of England has maintained interest rates at 3.75%, with the chief economist at KPMG attributing the downward revision in inflation forecasts largely to measures announced in the autumn budget. The government’s policy package is proving instrumental in controlling price pressures.
The committee’s 5-4 vote to hold rates steady showed significant internal debate about the appropriate timing for further easing. Four members supported an immediate cut, while five preferred to wait, following six previous rate reductions since mid-2024. This division suggests that additional cuts remain likely as inflation continues declining.
Governor Andrew Bailey highlighted the improving inflation outlook, projecting it will return to around 2% by spring. He emphasized that while maintaining current rates is appropriate now to ensure inflation stays low, there should be scope for further reductions later in the year. When questioned about the probability of a March rate cut, Bailey endorsed the market’s 50-50 assessment.
Yael Selfin, chief economist at KPMG, provided analysis of the inflation forecast revision, stating that “the downward revision in inflation largely reflects the impact of the measures announced in the autumn budget, which will see energy prices ease from April onwards.” This expert assessment confirms the significant role government policy is playing in controlling inflation.
Economic forecasts show GDP growth of just 0.9% this year, down from 1.2% previously projected, while unemployment is expected to climb to 5.3%. The Bank’s projection that inflation will fall to 2.1% by the second quarter of 2026, compared to 3.4% in December, is heavily influenced by Chancellor Rachel Reeves’s budget measures. These include utility bill cuts and rail fare freezes starting in April, which are expected to provide substantial relief to households struggling with elevated living costs.