Decision comes in narrow 5-4 vote, as bank says despite being above 2% target, annual inflation expected to fall back from April, owing to developments in energy prices including from Budget 2025.

The Bank of England on Thursday held the policy rate steady at 3.75%, as markets had widely expected.

The move followed the central bank’s decision to cut the rate by 25 basis points in its previous meeting after keeping it unchanged at the two meetings prior. The Bank Rate currently stands at its lowest level since 2022.

The decision was taken by the bank’s Monetary Policy Committee by a narrow 5-4 vote. Four members voted for a 25 basis point rate cut.

“Although above the 2% target currently, CPI inflation is expected to fall back to around the target from April, owing to developments in energy prices including from Budget 2025,” a bank statement said.

It stated that reflecting the impact of monetary policy, and consistent with evidence of subdued economic growth and building slack in the labor market, pay growth and service price inflation have generally continued to ease.

“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,” the central bank said.

“The restrictiveness of policy has fallen as Bank Rate has been reduced by 150 basis points since August 2024,” it noted, adding that the policy rate is likely to be reduced further on the basis of the current evidence.

“Judgements around further policy easing will become a closer call. The extent and timing of further easing in monetary policy will depend on the evolution of the outlook for inflation,” the Bank of England added.

Annual consumer inflation in the UK rose to 3.4% in December, up from 3.2% in November.