The Bank of England is expected to hold interest rates steady at 3.75% when policymakers meet next week, though another tight vote looks likely as the case for easing builds.
After the narrow 5-4 vote in favour of a cut in the December monetary policy committee meeting, UBS economist Anna Titareva reckons Governor Andrew Bailey and key deputy governors are likely to vote for a hold, swayed by still-elevated wage pressures and a lack of cracks in the jobs market.
Even though wage growth is drifting lower, with private sector pay growth at a five-year low of 3.6% in November, Titareva said the pace of decline is too gradual to warrant an immediate move.
Market pricing agrees, with traders seeing almost a zero chance of a cut on Thursday, 5 February.
However, the doves may not have long to wait. UBS now expects two cuts this year, in March and June, bringing rates down to 3.5% and then left at 3.25% as the easing cycle comes to an end – though Titareva said the chances were tilted towards further easing below that.
Next week’s meeting will also include updated BoE forecasts.
UBS expects the inflation outlook to be revised lower, helped by falling energy prices and the April rebate on household bills, which should knock 0.5 percentage points off headline inflation. The bank’s projections are likely to show inflation falling to the 2% target by the end of 2026, and staying there into 2027 and 2028.
Economic growth, meanwhile, is expected to be revised slightly lower for 2026, to 1.1%, though later years are seen holding steady.
As for Bailey and the MPC, expect more cautious language next week — but with a nod to easing ahead. UBS expects the committee to reiterate that rates are likely to follow a “gradual downward path”.