Bank of England5 February 2026

Bank of England Monetary Policy Report – February 2026

Usefulness score

Exceptional UK-focused, highly recognisable BoE report with rich, current data and clear policy trade‑offs, ideal for Edexcel macro exam application.

Summary

The MPC voted 5–4 to hold Bank Rate at 3.75%, with four members preferring a 0.25pp cut, as CPI inflation (3.4% in December) is projected to fall close to the 2% target by Q2 2026, largely due to lower energy bills helped by measures in Budget 2025. The Bank signals further cuts are likely but will be a closer call, given easing wage growth and a loosening labour market alongside lingering services inflation and administered price effects. Ofgem’s price cap is expected to drop in April to £1,616 from £1,758, and private-sector pay growth has moderated toward c.3–4%.

Application

How to use this in an exam answer.

Use this as a prime UK example of monetary policy trade‑offs and transmission: the MPC balancing inflation persistence risks against weak demand and rising slack, with Bank Rate held at 3.75% after 150bp of cuts since Aug 2024 and guidance that further easing is likely. Quote concrete data to support analysis: CPI 3.4% (Dec), inflation projected ~2.1% in Q2 2026, Ofgem cap £1,616 (Apr), private AWE ~3.6%, showing how falling energy costs and moderating wages feed through to lower services and headline inflation. Apply Phillips curve and expectations arguments, plus interaction of fiscal policy (Budget 2025 energy support) with monetary policy.

Evaluation

How to critically assess it.

Projections are uncertain and heavily reliant on energy prices and AR&T effects; a reversal in wholesale gas or sterling could stall disinflation. Services inflation and wage growth remain above rates fully consistent with the 2% target, so cutting too quickly risks persistence; waiting too long risks a deeper slowdown and higher unemployment. The neutral rate is uncertain, public-sector pay is still elevated, and household caution (high saving rate) may weaken transmission, so the timing and scale of further easing are finely balanced.