Bank of England holds interest rates at 3.75%

05 February 2026

The Bank of England has decided to keep the UK base interest rate at 3.75%.

With inflation still running above the Bank’s 2% target, the Monetary Policy Committee has chosen to hold rates steady for now. 

After a year of gradual cuts, markets had been split on whether another reduction would come sooner. Instead, today’s decision signals a pause, though further cuts are still expected later this year.

How the base rate has come down since 2024

Since August 2024, the Bank of England has cut interest rates six times as part of its efforts to bring inflation down from its peak of around 10% just over three years ago:

Back in December, the Bank said it expects rates to come down slowly, depending on how inflation develops. For now, inflation is still running above target, with the latest figures showing 3.4% for the year to December 2025.

Speaking about the decision to hold rates, 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.”

What this could mean for pension annuities

While base rate decisions often grab the headlines, pension annuity rates are influenced more by long-term gilt (bond) yields than by short-term interest rate moves. A relative strength in longer-dated gilts has helped keep annuity rates attractive by recent historical standards. 

Around a year ago, UK government bond yields reached levels not seen since the financial crisis of 2008. They have eased back since - but only slightly. For example, through most of 2025, the 10-year gilt yield hovered in a fairly steady range of around 4.45% to 4.75%.

Longer-dated gilts, particularly the 15-year gilt yields commonly used when pricing pension annuities, have remained strong. This is encouraging for people thinking about securing a guaranteed retirement income, as it helps support high annuity rates. For people approaching retirement, locking your money into a guaranteed income remains a strong option, particularly if certainty and stability are a priority.

What the rate hold means for savers

Holding rates at 3.75% means returns on cash savings are less likely to fall immediately, but further reductions are still expected over the coming year. Many savings providers adjusted rates quickly after December’s cut, and more changes could follow if interest rates continue to edge lower.

For savers approaching retirement, this underscores the importance of considering how cash savings, pensions and guaranteed income options work together. With inflation still eroding spending power, making informed choices about where to hold your money and when to turn pension savings into income has become even more important.

Planning your retirement income in the months ahead

With interest rates expected to fall gradually, those approaching retirement will be thinking carefully about timing and certainty. Decisions such as when to secure an annuity, how much guaranteed income to take, and how much flexibility to retain all depend on your unique retirement goals.

For more information about buying an annuity to secure a guaranteed income from your pension pot, use our free annuity calculator for an initial view of what your income could be. 

You can also talk to one of our Annuity Specialists for further information and quotes from the UK’s top annuity providers. Please call us on 0800 652 1316 or email us at info@retirementline.co.uk.