Deutsche Bank anticipates the Bank of England will leave the Bank Rate unchanged at 3.75% when policymakers meet in February, according to a research note published on Friday. The bank expects the Monetary Policy Committee to vote 7-2, with external members Alan Taylor and Swati Dhingra predicted to favour a rate cut.
Analysts at Deutsche Bank characterise the UK economy as showing signs of resilience even as labour market conditions remain fragile. The note cites unemployment at 5.1% in the three months to October as evidence of lingering softness in that area of the economy.
On growth and inflation, Deutsche Bank expects the Bank of England to nudge down near-term GDP forecasts modestly while lifting medium-term growth projections. The bank also projects inflation will reach the central 2% target by spring.
Deutsche Bank says the central bank is likely to stick with its guidance that the Bank Rate sits on a "gradual downward path," while reiterating wording that "judgements around further policy easing will become a closer call." The research note stresses that the combination of an economy gaining momentum and survey data pointing to elevated underlying prices has increased the chance that policymakers will postpone the start of rate reductions.
Despite the prospect of a hold in February, Deutsche Bank maintains a baseline that includes two rate cuts in 2026, though it flags uncertainty around the timing of those moves. The bank plans to revisit its outlook following the February decision, noting risks are tilted toward a slower easing of restrictive policy as the committee interprets competing economic signals.
The February meeting will be important for determining whether recent softer spot data reflect a genuine easing in price pressures or whether incoming higher readings suggest persistent underlying inflation. Deutsche Bank says it will pay close attention to the Bank of England's staff projections and any forward guidance provided by the committee for indications of future policy direction.
Summary
Deutsche Bank expects the BoE to hold rates at 3.75% in February, forecasting a 7-2 MPC split with two external members favouring a cut. The bank points to resilient growth amid a fragile labour market, projects inflation to hit 2% by spring, and still anticipates two cuts in 2026 while warning of timing uncertainty.
Key points
- Deutsche Bank expects the Bank Rate to remain at 3.75% in February with a predicted 7-2 vote split; external MPC members Alan Taylor and Swati Dhingra are expected to dissent in favour of a cut.
- The UK economy shows resilience despite a fragile labour market, with unemployment at 5.1% in the three months to October; inflation is expected to reach the 2% target by spring.
- Deutsche Bank still forecasts two rate cuts in 2026 but notes uncertainty on timing and says risks are skewed toward a slower reduction of restrictive policy.
Risks and uncertainties
- Timing risk - The bank highlights uncertainty over when rate cuts might occur in 2026, leaving markets exposed to shifting expectations.
- Policy path risk - Deutsche Bank flags that risks are skewed toward a slower dial down of restrictive policy, which could affect financial markets sensitive to interest-rate outlooks.
- Data interpretation risk - The February meeting will test whether easing in spot data signals a durable slowdown in price pressures or if higher incoming readings point to persistent underlying inflation.