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The Bank of England is likely to point the way to a further interest rate cut in the coming months after leaving policy unchanged on Thursday, as it balances evidence of a weakening jobs market against firmer growth.

The BoE’s Monetary Policy Committee is widely expected to keep its key rate on hold at 3.75 per cent, but investor focus will be on the bank’s guidance on future rate moves at a time of conflicting signals about the UK economy.

Business activity has picked up after the November Budget even as hiring continues to worsen. The unemployment rate held at 5.1 per cent in November, its highest level since early 2021.

“Although the incoming data do not justify an imminent further rate cut, we expect the story to change as the year progresses,” said Andrew Wishart, an economist at Berenberg Bank who predicts a rate reduction in April. “It will be difficult for spending and activity to maintain momentum.”

The BoE in December lowered its key rate by a quarter point to 3.75 per cent given cooling inflation, while cautioning that future decisions were likely to be a “closer call” as it moves towards the end of its easing cycle. Consumer price inflation was 3.4 per cent in December, down from the summer’s highs of 3.8 per cent.

The Monetary Policy Committee is divided between officials who think the weakening jobs market will help keep inflation in check, arguing for lower rates, and those who argue that improved economic momentum could impede efforts to tame price growth.

The key question confronting policymakers at this week’s meeting is how to balance signs of weak hiring and rising joblessness against surveys pointing to improving business activity and firm wage growth.

The number of payrolled employees fell by 155,000 in November 2025 from the same month the prior year, according to the Office for National Statistics. The redundancy rate, which tracks the share of people reporting they were made redundant in the past three months, was 4.9 per thousand employees, up from 3.8 previously.

Private sector wage growth, which BoE policymakers view as a key indicator of underlying inflationary pressure in the economy, slowed to 3.6 per cent excluding bonuses in the three months to November, down from 3.9 per cent in the three months to October. 

But the Bank of England’s survey of corporate decision makers points to pay rises of 3.7 per cent this year — above the BoE’s comfort level — and research from its regional agents points to an average pay settlement of 3.5 per cent. 

Further complicating interest rate decisions are signs of post-Budget acceleration in private-sector business. The S&P PMI index, a measure of corporate activity, rose to 53.9 in January, the highest since April 2024. 

That came after GDP growth improved to 0.3 per cent in November, according to separate official figures. 

With the BoE set to factor in Budget measures such as delays to fuel duty increases and a rail fare freeze, its forecasts are likely to point to inflation heading back to target or even below it.

That should permit the central bank to leave the door open to another rate reduction as soon as its March meeting. Assuming rates fall to 3.5 per cent, however, the picture will then become more clouded, given borrowing costs will be closer to neutral levels that neither stimulate nor restrain activity. 

“We expect the MPC to reiterate its previous guidance that another Bank Rate cut is likely but the rate cycle is probably close to an end,” said Rob Wood at Pantheon Macroeconomics.