Bank of England Holds at 3.75% as Alan Taylor Calls for 3% Base Rate Target

The Bank of England has maintained interest rates at 3.75%, but one committee member has gone further than others in advocating for substantial future cuts. Economist Alan Taylor, who voted for an immediate reduction, suggested that a base rate of 3% should now be “in our sights,” implying three additional quarter-point cuts are needed.
The monetary policy committee’s 5-4 split decision revealed significant internal debate about the pace of policy easing. Four members, including Taylor, Sarah Breeden, Dave Ramsden, and Swati Dhingra, supported an immediate cut, while five others preferred to wait. This division comes after six rate cuts since mid-2024 and suggests the easing cycle will continue, though policymakers disagree on timing.
In his individual explanation within the meeting minutes, Taylor pointed to what he described as “continued drift” in the Bank’s forecasts toward weaker growth and lower inflation. This trend, he argued, strengthens the case for more aggressive easing. By contrast, Megan Greene, a more hawkish committee member, expressed concerns about consumers’ high inflation expectations and strong wage growth, warning of potential “policy error” if rates are cut too quickly.
Governor Andrew Bailey struck a middle ground, acknowledging the improving inflation outlook while justifying the hold decision. He projected inflation would return to approximately 2% by spring and suggested that conditions should permit further rate reductions during the year. However, he emphasized the importance of ensuring inflation remains stable at the target level, which requires careful policy management.
The economic backdrop shows significant challenges, with GDP growth forecast at just 0.9% this year compared to 1.2% previously expected. The labor market is also weakening, with unemployment projected to reach 5.3%. Meanwhile, the chancellor’s budget measures, including utility bill cuts and rail fare freezes from April, are expected to drive inflation down to 2.1% by mid-2026, well below December’s 3.4% and close to the 2% target.