LONDON (AP) — The Bank of England is set to keep its main interest rate unchanged at 3.75% on Thursday as inflation remains above target and economic growth is showing signs of picking up.

The central bank, which sets interest rates for the whole of the U.K., has been steadily reducing interest rates over the past 18 months, more often than not every three months. It last cut its key rate in December by a quarter of a percentage point and indicated that further reductions are likely this year.

Since then a series of economic indicators have shown the British economy has made a stronger than anticipated start to the year, which has the potential to put upward pressure on inflation.

Inflation, though trending downward over the past year or so, remains above the Bank of England’s 2% target, at 3.4%.

“The early data covering 2026 hint at stronger demand and stickier inflation than we had expected,” said Andrew Wishart, senior U.K. economist at Berenberg Bank.

Economists said upcoming data will be key to when the central bank cuts interest rates again.

Lower interest rates help spur economic growth by reducing borrowing costs, which can lead to increased spending by consumers and boost investment by businesses. But that can also fuel higher prices.

Central bankers have to weigh those competing forces, trying to prevent inflation from eroding the value of earnings and savings without putting an unnecessary brake on economic growth.

Britain’s Labour government has lost significant support since it won the general election in 2024, partly because of economic factors. It will be hoping that inflation falls sharply this year, allowing the central bank to further reduce borrowing costs.

The Associated Press