Interest rates have been held at 3.75% as the Bank of England said the UK economy will grow at a slower rate than previously thought, and unemployment will worsen.
The central bank said it was keeping rates unchanged to make sure that inflation stays around its target level of 2%.
New forecasts from the Bank’s Monetary Policy Committee (MPC) show the rate of Consumer Prices Index (CPI) inflation dropping to the target this year, having previously said this would happen in 2027.
The MPC thinks that measures announced in the Chancellor’s autumn budget will help to slow inflation, particularly a package of support to bring down household energy bills from April.
Andrew Bailey, the Bank’s governor, said: “We now think that inflation will fall back to around 2% by the spring. That’s good news.
“We need to make sure that inflation stays there, so we’ve held interest rates unchanged at 3.75% today.
“All going well, there should be scope for some further reduction in the bank rate this year.”
However, the central bank downgraded its growth forecasts for 2026, from 1.2% to 0.9%, and 2027, from 1.6% to 1.5%.
It is also expecting the unemployment rate to rise to 5.3% this year, having said in November that it would peak at 5.1%