Emeritus Professor Joe Nellis is economic adviser at MHA, the accountancy and advisory firm.

The Monetary Policy Committee (MPC) has opted for caution in the wake of a rise in inflation to 3.4% in December, voting to keep interest rates unchanged at its first meeting of 2026. The MPC has judged this uptick to be driven largely by temporary factors rather than a renewed, broad-based surge in inflationary pressure, meaning that hopes of a cut in Spring have not been quashed.

We may still see multiple rate cuts before the year is out. The MPC understands that the underlying disinflationary trend remains intact. Core inflation and medium-term indicators continue to point to easing price pressures, even as temporary influences — such as seasonal effects, energy price adjustments and regulated price changes — pushed headline inflation higher at the end of the year. With wage growth showing signs of moderation, the December rise should not impact the MPC’s long-term rate-cutting strategy.

For the wider economy, holding rates reinforces expectations of a slow but stabilising outlook in 2026. Expectations for economic growth remain modest, but as inflation falls back over coming months, real household incomes are expected to recover gradually, supporting consumption.

Households will take some reassurance from the gradual easing of interest rates since mid-2024, and no imminent return to higher rates means that mortgage and credit costs will not rise again, easing pressure on finances already strained by high living costs. However, the lack of an immediate rate cut means relief will be gradual rather than swift.

For the Government, unchanged rates help limit volatility in debt interest spending, providing a more predictable environment for fiscal planning, even as borrowing costs remain elevated.

For businesses, the decision offers welcome stability. While financing conditions are still tight, the MPC’s response to temporary inflation pressures signal a measured and forward-looking approach, helping to anchor confidence as firms plan investment and hiring in the year ahead. The message from the MPC is clear — a gradual policy of monetary loosening is underway, but they won’t risk rocking the boat in the process.

Among its 30 locations, accountancy and advisory firm MHA has offices in Edinburgh and Aberdeen.