The Bank of England (BoE) has held interest rates at 5.25 per cent for the fourth time in a row. This is no big surprise: with inflation ticking back up slightly on the year to December (rising to 4 per cent) – continued trade disruption in the Red Sea last month is expected to have some impact on prices – it was unlikely that the Monetary Policy Committee was going to start a rate-cutting spree so early in the year.

Instead, the hints are in the language used by the Monetary Policy Committee (MPC) in its report. Markets were looking for clear indication that rate cuts are coming. The BoE has delivered this, making clear that the process may not be as fast or radical as many were hoping it would be.

The MPC continues to lean hawkish, as it works to get inflation back to the target of 2 per cent. Like other independent forecasters, the Bank is now optimistic that inflation will slow to this level by this spring, but it is not convinced it will stay there. It is expecting an uptick in inflation in the second half of 2024 – due to persistent ‘domestic inflationary pressures’ and energy prices – which are expected to keep inflation slightly above target for the rest of the Bank’s forecast period.

As a result, the report emphasised that rates ‘will need to remain restrictive for sufficiently long to return inflation to the 2 per cent target sustainably in the medium term in line with the MPC’s remit’. In other words, it’s not simply about returning to target, but about the Bank feeling confident it can stay around the target in the long run.

Granted, this uptick in inflation is not expected to be anything like what we’ve just experienced. The BoE expects inflation to be closer to 3 per cent by the end of this year and just above 2 per cent in two year’s time. This helps to explain why the MPC voted 6-3 to again maintain the bank rate.

This time, there was a bigger split in the committee. Instead of three members voting to increase rates by 0.25 percentage points, two members voted to hike and one member voted to cut the rate by 0.25 percentage points. Some language was softened, too, as the report noted the MPC ‘will keep under review for how long Bank Rate should be maintained at its current level’. This is a nod to the impact higher rates are having on economic growth. The Bank is well aware of this trade-off.

Today’s report seems to be signaling to markets that rate cuts are coming: but expect a slow and steady approach rather than a rapid fall. It’s tentatively good news for mortgage holders, who already have big banks engaging in price wars to offer lower mortgage rates: HSBC, Barclays and Santander were just some of the banks that have been offering up five-year fixed deals under 4 per cent last month. The split voting on the MPC will be an indicator that rates will eventually be moving in the right direction, and that their offers are consistent with the Bank’s medium-term trajectory.

But just yesterday Goldman Sachs was predicting the first 0.25 percentage point cut in May, followed by consecutive cuts every meeting, all the way to next spring. Today the Bank laid out its own timeline, based on its current projections for inflation, which shows rates falling to around 4 per cent by the first quarter of next year, and around 3.25 per cent by the start of 2026. That suggests a longer period of continuing to hold rates. It also abolishes expectations that when the Bank starts to cut rates, it will do so consecutively and with force.

It is also a reminder that the days of ultra low interest rates are over; the days of pre-pandemic rates are long gone.