The Bank of England’s Monetary Policy Committee (MPC) voted today to maintain the base rate at 3.75%.
The MPC voted by a majority of 5 to 4, with four members voting to reduce the base rate by 0.25% to 3.5%.
In the summary of its latest meeting, the MPS said that whilst above the 2% target currently, CPI inflationis expected to fall back to around the target from April, owing to developments in energy prices including from Budget 2025.
It added that the risk of inflation has eased. It said: “The risk from greater inflation persistence has continued to become less pronounced, while some risks to inflation from weaker demand and a loosening labour market remain.”
It added that it expects to reduce the base rate further this year.
Since the last MPS meeting, the CPI 12 month inflation rate rose unexpectedly in December to 3.4% from 3.2% in November.
The rise was blamed mainly on higher pre-Christmas prices, particularly for air fares, alcohol and tobacco.
The rise suggests the government and Bank of England are finding it difficult to push inflation down to the 2% long term target.
On a monthly basis, CPI rose by 0.4% in December, compared with a rise of 0.3% in December 2024.
This year the BoE has cut the base rate four times.
Charlie Ambler, partner at Saltus, said he expects the Bank of England to continue a gradual easing cycle.
He said: “Short term fluctuations in inflation data are unlikely to alter the broader direction of travel, but the Bank will be keen to reinforce its commitment to a gradual and measured approach to rate cuts. The full disinflationary impact of the tax measures announced in the Autumn Budget has yet to feed through, which means policymakers are likely to strike a cautious tone in their forward guidance. How confident the Bank sounds that inflationary pressures are being brought under control will be closely watched by markets.”