UK Consumer Price Index at 3.4% for December
As for that 2% inflation target, the chart below shows we are generally headed back towards it, but still with work to do.
This is UK CPI – which was at 3.4% for December.
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(CMS: ONS)
Harriette Boucher5 February 2026 10:36
How interest rates affect inflation
The Independent’s Business and Money Editor Karl Matchett:
The link between interest rates and inflation is a complex one, and not the only factor in the slightest which impacts the MPC’s decision, but it’s an important part of the puzzle.
In brief and simple terms, when interest rates are down, people tend to have more money to spend because mortgage repayments are lower, and it’s cheaper to borrow money for other loans as repayments are lower – so they are more likely to spend on bigger-ticket items.
That means businesses have more income, so are more likely to invest in their own projects including hiring personnel, which again leads to more money in pockets…but it also means demand is higher for goods and services, which can push prices higher. That is, of course, exactly what inflation is: prices going up.
When interest rates are high the opposite happens: less borrowing, higher costs, lower spending, lowered demand. So striking the balance between all this is part of what goes into deciding what level interest rates should be at, to support a growing economy – but not at the expense of high inflation.
There is a government-set 2% target for inflation, which is seen as ideal to grow an economy without goods and services becoming overly expensive too quickly for the majority of the population.
Harriette Boucher5 February 2026 10:19
What will today’s announcement mean for savers?
If interest rates hold today, as is widely expected, it will be good news for savers, as returns on easy-access and variable accounts are unlikely to immediately fall.
Maike Currie, VP of personal finance at PensionBee, said: “It’s a big week for central banks, with interest rate decisions from the Bank of England and the European Central Bank, alongside fresh scrutiny of the US Federal Reserve following last week’s nomination announcement of a new Fed Chair.”
The pension provider said that despite the changes announced to the Cash ISA in the November Budget, which saw the allowance for individuals under 65 reduced from £20,000 to £12,000 from April 2027, savers were still stashing record amounts into their Cash ISA.
According to the Bank of England’s latest money and credit report in December, savers added £5.2 billion to cash ISAs and £5.1 billion to interest-paying easy-access accounts.
Tamsin Powell, Consumer Finance Expert at Creditspring, said: “Anyone with cash set aside can still make their money work harder while inflation continues to cool.
“For households that have been able to build even a small buffer, this period of stability offers a chance to pause, review finances, and plan ahead with a bit more confidence.”
Harriette Boucher5 February 2026 09:55
What happens when interest rates rise?What happens when interest rates rise?
Harriette Bouche5 February 2026 09:37
Barclays strategist expects BoE unlikely to commit to future rate cuts
The Bank of England is not likely to commit to the timing of any future interest rate cuts, according to a chief market strategist.
Julien Lafargue at Barclays Private Bank said: “The Bank of England is widely expected to keep interest rates unchanged in February.
“On the back of the Budget, we could see a more benign outlook on the inflation front, at least in the short-term.
“When it comes to forward guidance, the BoE is likely to remain noncommittal about the timing of any future interest rate cuts.
“That said, the combination of lower inflation ahead and continued softening of the UK labour market should reinforce the central bank’s view that the path for monetary policy is towards a lower Bank rate, potentially as early as next month.”
Harriette Boucher5 February 2026 09:10
Economists predict interest rates to hold in 6-3 split
Economists are forecasting a 6-3 split at today’s Monetary Policy Committee, with the majority of members leaning towards holding interest rates.
Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK, said: “Growth picked up in November, and surveys suggest a strong start to the year, which will be enough to keep the MPC on hold despite a continued loosening in the labour market.
“The guidance will probably continue to indicate more cuts are likely but will be increasingly cautious on the timing and number of additional rate cuts needed.”
Mr Pugh said the MPC will be more cautious about future rate cuts and expects just one cut this year in April.
“That said, if the labour market continues to weaken, and that weakness translates into a faster-than-expected slowdown in pay growth then the MPC could be convinced to cut further.”
Interest rates being kept at 3.75% is a ‘near-certainty’, economists think (John Walton/PA) (PA Wire)
Harriette Boucher5 February 2026 08:49
Pound slightly weaker against the US Dollar in early trading
The pound is slighter weaker than the US Dollar, down a third of a cent at around $1.3620.
At its lowest level in nearly two weeks, the pound has come under pressure ahead of the interest rate decision later today.
Harriette Boucher5 February 2026 08:31
How inflation rebound is set to affect UK interest rates
Interest rates are widely expected to remain at 3.75% as Bank of England policymakers prioritise curbing above-target inflation while also monitoring economic growth, according to expert analysis.
The Bank’s Monetary Policy Committee (MPC) is anticipated to leave borrowing costs unchanged when it announces its latest decision on Thursday, marking its first interest rate setting meeting of the year.
This follows a rate cut delivered before Christmas, which was the fourth such reduction.
At the time, Governor Andrew Bailey noted that the UK had “passed the recent peak in inflation and it has continued to fall”, enabling the MPC to ease borrowing costs. However, he cautioned that any further cuts would be a “closer call”.
Since that decision, official data has revealed that inflation unexpectedly rebounded in December, rising for the first time in five months.
Harriette Boucher5 February 2026 08:16
Getting a mortgage soon? It’s not just about interest rates
One of the big groups of people who will keep a keen eye on the rates decision is anyone getting, or renewing, a mortgage soon.
But the headline rate isn’t the only thing which matters when it comes to that decision, of course.
Aaron Shinwell, chief lending officer at Nottingham Building Society, explains why now might be a good time – and what else you need to look for.
“Mortgage rates are now at their lowest levels since 2022, creating real opportunities for anyone looking to buy or remortgage. Rates have already passed their peak and could gradually edge down over time, which good news for the 1.8 million borrowers expected to remortgage this year and first-time buyers finding a more realistic route onto the property ladder.
“Small shifts in expectations around future base rate reductions are already influencing mortgage pricing and we anticipate modest downward movements in rates through 2026, which should help support demand.
“Getting the right mortgage isn’t just about chasing the lowest headline rate. Term length, overpayment flexibility and long-term affordability all matter. Engaging early with a broker can make a real difference whether that’s securing a mortgage offer now while keeping the flexibility to switch if better options appear before completion.”
Karl Matchett5 February 2026 07:57
Will interest rates go down today? Key factors and 2026 predictions
The base rate – now at 3.75 per cent after being cut four times last year – impacts business, consumers and taxpayers through everything from mortgages to loans and savings, so what do experts foresee, both this week and beyond?
Here’s everything you need to know ahead of today, including the key factors which impact interest rates decisions.
Karl Matchett5 February 2026 07:48