On Thursday, the Bank of England kept its main UK interest rate steady at 4.50%, despite sluggish economic growth and heightened uncertainty due to tariff measures introduced by the Trump administration in the US.
The widely anticipated decision by the nine-member Monetary Policy Committee follows the US Federal Reserve’s move a day earlier to leave interest rates unchanged.
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Meeting minutes revealed that eight members voted to maintain the current policy, while one supported a quarter-point reduction.
Since last August, the Bank of England has lowered its main rate three times from a 16-year peak of 5.25%, most recently in February, following a decline in inflation from over 10%—a multi-decade high reached after the energy price surge triggered by Russia’s full-scale invasion of Ukraine in early 2022.
However, inflation remains at 3%, still above the bank’s 2% target, and is expected to climb in the coming months, even before factoring in potential tariffs from the Trump administration. Many economists predict inflation could reach 4% as businesses raise prices in response to a significant minimum wage hike and increased payroll taxes.
“There’s a lot of economic uncertainty at the moment,” said Bank Governor Andrew Bailey. “We still think that interest rates are on a gradually declining path, but we’ve held them at 4.5% today.”
If policymakers maintain their measured approach, another rate cut is likely in May when they will have access to the bank’s latest economic forecasts, and Bailey will hold his next press conference.
Bailey noted that rate-setters will be “looking very closely at how the global and domestic economies are evolving” and reiterated that their priority is to ensure inflation remains “low and stable.”
On Wednesday, the US Federal Reserve also kept borrowing rates unchanged and voiced concerns over the short-term economic outlook, particularly regarding US President Donald Trump’s tariff policies, which economists fear could dampen global growth and drive up prices.
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The UK, the world’s sixth-largest economy, recorded meagre growth of 0.1% in the fourth quarter—a major disappointment for the newly elected Labour government, which has prioritised economic expansion. Since the 2008-2009 global financial crisis, the UK’s economic performance has consistently lagged behind its long-term average.
Critics argue that Treasury chief Rachel Reeves bears some responsibility for the bleak economic outlook since Labour’s return to power in July after 14 years. They claim she adopted an overly pessimistic stance upon assuming office and subsequently raised taxes, particularly on businesses.
Reeves, who is set to deliver a highly anticipated fiscal update to lawmakers on 26 March, will be hoping for further rate cuts by the Bank of England in the coming months, as lower borrowing costs could help stimulate growth.
Economists suggested the bank’s latest update provided little clarity on the broader outlook, though most still anticipate a quarter-point reduction in May.
“But beyond that, much will depend on trade policy from the US and upcoming fiscal announcements from the Chancellor,” said Luke Bartholomew, deputy chief economist at asset management firm Aberdeen.