Key Takeaways
- Futures markets are expecting an interest rate hold in February, with the next rate cut likely to be in April.
- At the meeting, the Bank will provide an update on when it expects CPI inflation to hit the 2% target.
- Some fund managers say the Bank could cut interest rates up to four times this year as inflation falls.
The Bank of England is expected to hold UK interest rates when it meets for the first time in 2026 on Feb. 5 amid a recent uptick in inflation.
Following four interest rate cuts in 2025, futures markets suggest there is only a 4.1% chance of a rate cut at the February meeting, and only a 28% chance of one on March 19, 2026. The first, and so far only rate cut of the year, is anticipated in April.
The Bank’s decision, due midday on Thursday, Feb. 5, 2026, will set the tone for what is expected to be a year of cautious monetary policy decisions against a backdrop of global political instability and a sluggish domestic economy.
While inflation is forecast to fall back to the 2% target in 2026, an unexpected rise in the Consumer Prices Index in December may slow the next steps for policymakers, economists say.
“We think that [the] bank rate is likely to fall gradually further in future, but that will depend on whether variables like pay growth and services inflation continue to ease,” the Bank said at the December 2025 meeting, where rates were cut from 4% to 3.75%.
Still, Morningstar international economist Grant Slade says that futures markets are not factoring in a slowdown in domestic economy, evidenced by increasing unemployment and slowing wage growth. Tax rises introduced in the Autumn Budget are also expected to be a drag on the economy in the coming years.
“Market data points to widening labor market slack, which should engender disinflationary impulse in the economy,” he says.
“We continue to anticipate further interest rate normalization in 2026, with inflation likely to revert close to the BoE’s 2% inflation target by year-end,” he adds.
Accompanying the meeting will be the Bank of England’s quarterly monetary policy report, when the central bank will update its inflation targets, specifically when it expects CPI to fall back to target.
The report will also contain the latest forecasts for the UK economy, which is predicted to expand by 1.4% this year. The next official UK GDP data will be released on Feb. 12, covering the last quarter of the year.
How Many Interest Rate Cuts Will the Bank of England Make in 2026?
Though the potential inflationary effects of further trade wars over President Donald Trump’s claim to Greenland have no doubt made for dramatic headlines, at present institutional investors feel the UK is relatively insulated from any economic fallout from that situation. To that end, the Bank could cut more than twice this year, says James Lynch, investment manager at Aegon Asset Management.
“The market predicts almost two cuts for the full year, and I see that as the minimum the Bank of England is likely to deliver,” he says.
“The economy remains sluggish and the labor market continues to loosen, meaning domestic inflation should come down in 2026. We’ll also see regulated price increases coming lower in April (rail fares, etc). With the oil price sitting in the low $60s [a barrel], this should be enough to deliver the cuts. The next BoE meeting will provide further clarity around how the Bank’s guidance is evolving.”
Jupiter Strategic Bond fund managers go further, suggesting a sharp fall in domestic inflation could “green light” the Bank to implement four interest rate cuts this year.
“We think that the Bank of England might end up having to cut maybe as many as four times this year as the economy really starts to slow down,” says Ariel Bezalel, co-manager of the fund, which has a Morningstar Medalist Rating of Silver.
What’s Happened to UK Inflation?
Having hit a 22-year high of 11.1% in October 2022, CPI hit the Bank of England’s 2% target in May 2024 and bottomed out at 1.7% in November of that year. In 2025, inflation pushed higher once more, driven by rising energy costs, higher food bills, and consumer spending. Only in Q3 2025 did CPI begin to fall meaningfully once more, leading the Bank of England to predict that inflation would hit the 2% target once more in the second quarter of 2026.
