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. Jewellery shops see Eid sales decline amid soaring gold prices 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. Bangladesh set to achieve record remittance inflow in March 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.

Inflation in the UK climbed to a 10-month high in January, according to official data released on Wednesday, a development that is likely to temper expectations of swift interest rate cuts from the Bank of England, reports AP. The Office for National Statistics reported that inflation, as measured by the consumer prices index, increased to 3% in the year to January, up from 2.5% the previous month. NBR to launch AEO next week to fast track int'l businesses This rise, which pushed inflation further beyond the bank’s 2% target, was primarily driven by higher airfares, food costs, and private school fees following the new Labour government’s decision to introduce a sales tax. While economists had projected an increase to 2.8%, the magnitude of the surge has been unexpectedly high and is likely to raise concerns among central bank policymakers, particularly as they continue to express apprehensions about the UK's sluggish economic growth. Earlier this month, the bank reduced its main interest rate by a quarter of a percentage point to 4.50%—its third cut in six months—after slashing its 2025 growth forecast for the UK to 0.75%. If growth remains weak, it will be a significant setback for the UK’s new Labour government, which has prioritised economic expansion as a means of improving living standards and generating revenue for underfunded public services. As growth remains elusive, the party’s popularity has declined sharply since its election victory in July. The government will undoubtedly hope that the central bank provides support by further reducing interest rates, as this would lower mortgage costs and make borrowing more affordable, albeit at the expense of reduced returns for savers. DSE opens lower, CSE sees early gains Most economists expect inflation to rise further in the coming months due to increasing domestic energy bills, before beginning to decline in the latter half of the year. This should provide policymakers with scope to cut interest rates again—though possibly fewer times than previously anticipated. “A rate cut in March now seems highly unlikely, with the bank maintaining its cautious approach to easing for the time being,” said Luke Bartholomew, deputy chief economist at abrdn, formerly Aberdeen Asset Management. “However, whether the pace of rate cuts accelerates later in the year will depend on inflationary pressures returning towards 2%.”

Inflation in the UK unexpectedly decreased in December, a development that could increase pressure on the Bank of England to reduce interest rates next month and provide the government with some relief after recent financial market turbulence, reports AP. The Office for National Statistics reported on Wednesday that inflation, as measured by the consumer price index, stood at 2.5% in the year to December, primarily due to easing price pressures in the services sector, which constitutes around 80% of the UK economy. Germany's economy shrinks again This was down from 2.6% the previous month, with economists having predicted no change in the annual rate. While inflation has decreased, it remains above the Bank of England’s target of 2%. The bank determines interest rates based on its inflation expectations for the next one to two years. Therefore, if policymakers overlook a projected rise in inflation in the coming months, they may decide to cut borrowing rates at the next policy meeting on February 6, potentially providing relief to Treasury chief Rachel Reeves, who has faced negative headlines recently over her handling of the economy since Labour returned to power last July after 14 years. Asian stocks mixed ahead of US inflation data “The small decline in inflation will bring significant relief to both the Treasury and the Bank of England,” said Luke Bartholomew, deputy chief economist at abrdn. At the beginning of the year, financial markets anticipated three to four quarter-point interest rate cuts this year from the current 4.75%. However, in recent weeks, concerns about the UK’s inflation outlook have reduced those expectations. This shift has been reflected in the bond market, where the interest rate investors charge the UK government for 10-year loans has reached a 16-year high, partly due to concerns over the economic policies of U.S. President-elect Donald Trump and domestic issues. Regardless of the cause, these bond market shifts are likely to lead to higher interest payments for the government, adding pressure to Reeves' public finance projections. Critics argue that her first budget, delivered last October, will result in higher inflation than otherwise expected. The increased public spending in the budget will largely be financed through higher business taxes and borrowing. Some economists believe this spending spree, coupled with businesses potentially raising prices to offset tax hikes, could push inflation upwards and lead to higher interest rates. Inflation has significantly dropped from levels seen a couple of years ago, partly due to central banks raising borrowing costs from near-zero during the pandemic when prices began to rise due to supply chain disruptions and, later, Russia's full-scale invasion of Ukraine, which caused energy prices to surge. Asian shares mixed as Big Tech drops affect Wall Street As inflation has decreased from multi-decade highs, central banks have begun reducing interest rates, though few economists expect rates to return to the super-low levels seen in the years following the global financial crisis of 2008-2009.