The Bank of England (BoE) has held its benchmark Bank Rate at 3.75% at its February meeting (by a narrow 5-4 majority) as the UK inflation rate remains the highest among Group of Seven industrialised peers. However, 55% of economists in the latest Reuters monthly poll expect Bank Rate to subsequently fall to 3.50% in March following a run of better economic news – while 45% forecast the BoE would hold rates throughout the first-quarter of the year. As in the December poll, there was no clear majority view on where interest rates will be in any quarter beyond the current one, even though the median forecast shows a final cut to 3.25% in the third-quarter.
Bank of England (BoE) Governor, Andrew Bailey, sees a particular and urgent need to strengthen the global resilience of market-based finance, such as private credit against economic shocks. In Mr Bailey’s view, the sector is very large and fast-growing, while disparate in nature and opaque in important places, meaning that the international interlinkages are complex and hard to observe. In December 2025, the BoE launched a stress test of the private equity and private credit industries which will report back early next year. The focus of the test is on broader impacts on the UK economy most of which the BoE does not directly regulate, unlike banks. Mr Bailey believes that the challenge now lies in managing risks that sit beyond the banking perimeter as well as identifying and understanding new interconnections between banks and non-banks.
Bank of England (BoE) Governor, Andrew Bailey, has defended the central bank’s decision to cut headline bank capital adequacy requirements by 1.0% to 13.0% in December 2025, rejecting claims by former officials who caution that the most likely practical effect of this weakening of resilience will be higher payouts to bank shareholders. However, Mr. Bailey has told members of the Treasury Select Committee that the decision to cut regulatory requirements by 1.0% reflected updated assessments of bank capital needs under incoming Basel 3.1 rules and because an expectation, that UK lenders would become more systemically important globally, has not materialised. Mr Bailey believes that Basel 3.1 is worth about half-a-percent off the sort of buffer that are maintained by UK banks while the fact that UK banks have not become relatively more systemically significant justifies a further reduction of half-a-percent.
The UK Treasury Select Committee believes that UK regulators are not doing enough to stop AI from harming consumers or destabilising markets, urging regulators to move away from a “wait and see” approach as the technology is deployed widely. The Committee has recommended in a report on financial services that the Financial Conduct Authority (FCA) and the Bank of England (BoE) should start running AI‑specific stress tests to help firms prepare for market shocks triggered by automated systems. The FCA cautions that a race among banks to adopt agentic AI – which, unlike generative, do not just respond to commands but can also take the initiative, make decisions and carry out multi‑step tasks – will add new risks for retail customers.
Bank of England (BoE) Deputy Governor, Dave Ramsden, has stated that the central bank is making progress towards ensuring that the financial system is safe in the event of a collapse of an institution outside the traditional banking sector. The BoE is considering what failure arrangements are needed for important stablecoins as well as still having more work to do to ensure that firms and the BoE are ready to wind up a clearing house safely. The BoE is expected to launch a consultation later this year on ways to shut down safely a failing central counterparty (CCP).
During the month, Fitch downgraded the long-term credit ratings of OneSavings Bank plc and its Parent (OSB Group PLC) to reflect a change in the Group’s preferred resolution strategy by the Bank of England to ‘transfer’ status from ‘bail-in’ status which means that the minimum requirement for own funds and eligible liabilities (MREL) will consist only of capital requirements and so the Group is unlikely to maintain a large buffer of qualifying junior debt. In addition, Moody’s upgraded the long-term Bank Deposits ratio of Aldermore Bank PLC and maintained the “Stable” outlook to reflect the recent issue of loss-absorbing subordinated notes that has reduced the loss potential on operational deposits in the event of an insolvency situation.