The Bank of England held the Bank Rate at 3.75%, but the split vote and the tone of the statement pointed to further cuts once policymakers see firmer evidence that inflation is on track to return to 2%. The Bank also downgraded the UK outlook, trimming growth forecasts for the next two years and nudging up its unemployment view, arguing that a softer labour market should reduce pay and price pressures. With inflation expected to fall back close to target from April, investors brought forward expectations for the next cut, making March a genuine possibility. Markets reacted quickly: the pound fell about 0.6% to $1.357 and short dated gilts rallied, pushing the two year yield down slighly to around 3.63%.