Bank of England Holds Interest Rates at 5.25%, but Signals Cuts

After a long stretch of high inflation, the Bank of England finally has its 2 percent inflation target firmly within its sights.

The central bank said on Thursday that inflation is expected to reach the target in two years, and then go even lower, as policymakers inched toward cutting interest rates.

The majority of the bank’s nine-person rate-setting committee voted this week to hold rates at 5.25 percent, the highest since early 2018 and where they have been for nine months. But two members voted to cut rates, compared with just one at the previous meeting in March. And Andrew Bailey, the bank’s governor, reiterated that rate cuts were most likely on their way.

“We need to see more evidence that inflation will stay low before we can cut interest rates,” Mr. Bailey said in statement. “I’m optimistic that things are moving in the right direction.”

For much of the next year and a half, the bank expects inflation to be around 2.5 percent. But inflation will fall to 1.9 percent in early 2026, the bank forecast, and 1.6 percent in three years. Though inflation has retreated a long way from its recent peak, when it climbed above 11 percent in late 2022, the central bank is wary of prematurely declaring victory.

Like many other central banks, the Bank of England is trying to find the delicate balance between cutting interest rates as inflation slows toward their targets and not overly easing monetary policy because of the risk of resurging inflationary pressures.