Newsflash: The Bank of England has left UK interest rates on hold at 4.5%, despite concerns that trade conflict could hurt economic growth.
Faced with the dilemma of a slowing economy on one hand, and rising inflation on the other, the Bank’s policymakers have sat on their hands.
The Bank’s monetary policy committee was split, though, 8-1.
One member, SwatiDhingra, voted for a quarter-point cut to Bank rate to 4.25%.
But the other eight members voted for no change, including CatherineMann who had surprised the City last month by voting with Dhingra for a large rate cut.
Announcing the decision, the Bank says:
As the Committee noted in February, there has been substantial progress on disinflation over the past two years, as previous external shocks have receded, and as the restrictive stance of monetary policy has curbed second-round effects and stabilised longer-term inflation expectations. That progress has allowed the MPC to withdraw gradually some degree of policy restraint, while maintaining Bank Rate in restrictive territory so as to continue to squeeze out persistent inflationary pressures.
Since the MPC’s previous meeting, global trade policy uncertainty has intensified, and the United States has made a range of tariff announcements, to which some governments have responded. Other geopolitical uncertainties have also increased and indicators of financial market volatility have risen globally. The German government has announced plans for significant reform to its fiscal rules.
We also have an unexpected interest rate hike today!
Istanbul’s central bank has raised its overnight lending rate by two percentage points in a surprise meeting, a day after turmoil swept the Turkish markets.
The. move lifts Turkey’s overnight rate to 46%, to support the lira a day after the arrest of the mayor of Istanbul, Ekrem İmamoğlu, a key challenger to president Recep Tayyip Erdoğan.
The Bank of England has said UK businesses are freezing their hiring plans in response to Rachel Reeves’s tax increases and to mounting global uncertainty as it kept interest rates on hold at 4.5%.
Before the chancellor’s spring statement on Wednesday, the bank’s monetary policy committee (MPC) voted by eight to one to pause its cycle of rate cuts after three reductions in the past year.
“There’s a lot of economic uncertainty at the moment. We still think that interest rates are on a gradually declining path, but we’ve held them at 4.5% today.
“We’ll be looking very closely at how the global and domestic economies are evolving at our six-weekly rate-setting meetings. Whatever happens, it’s our job to make sure that inflation stays low and stable.”
Economists said the Bank had delivered a ‘hawkish’ hold, as eight of the nine policymakers voted to leave interest rates on hold. Only SwatiDhingra pushed for a quarter-point reduction to Bank rate.
The City money markets now indicate there is a roughly 50:50 split on whether the Bank cuts rates at its next meeting in May.
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The London Metal Exchange has been fined £9.2m by the City watchdog for mishandling the nickel market chaos in 2022, marking the regulator’s first penalty against a top investment exchange.
The path to further Bank of England rate cuts is becoming “more uncertain”, warns Lee Hardman, currency analyst at MUFG.
He tells clients today:
BoE leaves rates on hold and keeps door open to further gradual rate cuts.
We expect another rate cut in May but majority of MPC members indicate it is not a done deal. Higher risk of a skip in August.
BoE’s cautious approach to easing remains supportive for GBP [the pound] as UK yields set to remain higher for longer compared to in other major economies.
Given Investec’s comments, the Bank of England is unlikely to be reassured that British households’ expectations for inflation rose in February, according to a Citi/YouGov survey published on Thursday.
The survey showed public inflation expectations for one year. ahead at 3.9% in February versus 3.5% in January. Expectations for 5-10 years ahead rose to 3.9% from 3.7% in January.
The Bank of England appears concerned about a recent rise in inflation expectations, both on the household and business side, says Ellie Henderson, analyst at Investec:
While CPI data tells you about inflation pressures that have passed, expectations provide a warning signal for the MPC of where inflation is heading, as they can be self-fulfilling.
The minutes noted that various measures of inflation expectations, at both the short- and medium-term horizon have begun to climb, representing an ‘upside risk to future pay and inflation dynamics’.
EU delays implementing first retaliatory tariffs on US goods until middle of April
We have a little more certainty about how the EU might retaliate against Donald Trump’s trade war.
The European Union will delay implementing its first set of tariffs on goods from the U.S. until the middle of April to allow for additional time for discussions with Washington, an EU spokesperson has told CNBC.
The spokesperson explained:
“The Commission has decided to align the timing of the two sets of EU countermeasures against US 232 tariffs on EU steel and aluminum.
“The change represents a slight adjustment to the timeline and does not diminish the impact of our response, in particular as the EU continues to prepare for retaliation of up to €26bn.”
S&P Global predict rate cuts in August and November
S&P Global Market Intelligence predict the Bank of England’s next interest rate cut will come in August, followed by one more in November, to get Bank Rate down to 4.0% by December.
They predict the Bank will maintain a relatively cautious assessment because of escalating upside inflation risks.
Raj Badiani, economics director for Europe at S&P Global Market Intelligence, explains:
“We continue to maintain that the foundations of medium-term price stability are not secure. Therefore, the MPC is likely to tread carefully about the timing of the next rate cuts, given the uncertainty of the main Autumn Budget 2024 measures on short-term inflation developments.
The MPC notes risks of inflation persistence and warns that monetary policy needs to remain restrictive to return inflation to its 2% target in the medium term on a sustainable basis. Today’s rate decision is disappointing news for the UK’s economy which continued to struggle in early 2025 and the risk of a mild and short-lived recession in the next few quarters is still on the table.
In addition, the economy faces another jolt with the government expected to consider additional fiscal corrective measures to protect its fiscal goals from notably weaker than expected growth developments.“ -said
Simon Dangoor, head of fixed income macro strategies at Goldman Sachs Asset Management, predicts the Bank of England will cut interest rates once per quarter – despite the uncertainty hitting the economy.
“As expected, rising uncertainty surrounding the inflation and growth outlook has led the BoE to maintain its ‘gradual and careful’ approach towards easing. But the vote split and the decision to take a more meeting-by-meeting approach introduced a somewhat hawkish tone.
“We continue to anticipate quarterly cuts continuing from May, but the outlook from June onwards is two-sided with a slew of domestic and international factors at play, from inflation to geopolitics. Carefully monitoring the data, staying dynamic in managing risks and looking for relative value opportunities remains critical for fixed income investors.”
Chancellor of the Exchequer RachelReeves has responded to today’s UK interest rates decison:
“We’ve had three rate cuts since the summer, but there’s still work to do to ease the cost of living.
That’s why I’m fighting every day to put more money in the pockets of working people to deliver our plan for change, and why we protected workers’ payslips with no rise in national insurance, income tax or VAT, boosted the national living wage and froze fuel duty.
In a changing world, I’m determined to go further and faster to kickstart growth, and bring in a new era of stability, security and renewal that protects working people and keeps our country safe.”
Here’s some expert reaction to today’s interest rate decision:
NickLawson, portfolio manager at Julius Baer International, says today’s decision – and the 8-1 split on the MPC – is more hawkish than expected:
There was a flurry of excitement in February, when the arch ‘hawk’, Catherine Mann, performed a spectacular about-turn, from objecting to any cuts to supporting a bumper ‘double’ cut of 0.5%. She appears to have reverted to her original position just a month later, having perhaps seen something in the data she dislikes.
The Bank’s minutes made many references to the UK’s anaemic economic performance. When growth falters, but inflation is benign, the Bank can seek to stimulate activity by cutting the cost of borrowing, however, this meeting suggests slowing growth but persistent fears around inflation. This is not a scenario any central bank wants to face and reflects the ongoing concerns that the UK is sliding towards stagflation.
The minutes also repeatedly referred to the current monetary policy being ‘restrictive’, meaning current levels curtail demand in the economy. While wider data from the economy remains mixed-to-subdued, the labour market is in relatively rude health. Continued wage growth above inflation might support consumption but might also cause the Bank to think twice about further cuts.
Modupe Adegbembo, economist at Jefferies, predicts the Bank will manage three rate cuts this year (that’s one more than the City money markets are pricing in):
“The BoE kept rates on hold as widely expected. The vote split slightly more hawkish than expected, with Mann choosing to no longer support a cut.
“The MPC still backs a ‘gradual and careful’ approach to easing and with rates at 4.50%, they remain restrictive and continue to weigh on economic activity. GDP continues to slow, and we continue to expect the next cut from the BoE in May.
“Like other central banks, the BoE is worried about rising global uncertainty. Trump tariffs and rising trade tensions could be a particular challenge for the UK, as a large importer higher trade could push inflation even higher, but at the same time slower growth in the Eurozone will also weigh on the UK outlook.
We expect three more cuts this year, in May, August and November bringing Bank Rate to 3.75% by the end of 2025. “
Matt Swannell, chief economic advisor to the EY ITEM Club, says the MPC is keeping its cards close to its chest:
“Having taken a surprisingly hawkish turn at its February meeting, it is no surprise that the majority of the MPC voted to keep Bank Rate unchanged at 4.50% at its March meeting. There remains broad agreement across the Committee that interest rates are still restrictive and will likely have to be reduced further. But there was less disagreement on the pace of interest rate cuts than expected, with only one Committee member preferring to lower Bank Rate to 4.25%. With two dovish Committee members voting for no change, it would appear that divisions among the Committee are narrowing. But this shift masks differing opinions on the outlook, as was indicated by recent remarks at the Treasury Select Committee.
“With some key policy changes just around the corner, it appears that the MPC remains uncertain around where it thinks the economy is heading. Ahead of the upcoming change in the National Living Wage and employers’ National Insurance Contributions (NICs), rate setters are waiting to see how businesses adjust headcount, pay and prices, while uncertainty around international trade policy continues to linger. Given these ongoing question marks, it seems likely that the MPC is going to proceed with caution, at least for now.
Borrowers may have to wait several months for a cut to interest rates.
The City money markets now indicate that a rate cut, from 4.5% to 4.25%, is only fully priced in for August. This morning, it was pretty well fully priced in by June.
That suggests that today’s decision is being seen as hawkish – with only one policymaker, SwatiDhingra, voting for a cut today.
Ed Monk, associate director at Fidelity International, says:
“The Bank of England struck a slightly more hawkish tone in holding rates today, highlighting the need to “pay close attention” to any signs of inflation picking up again. Only one member of the MPC voted for a further cut to 4.25% this month, down from two last month.
“The bond market ahead of today’s decision was predicting rates to fall below 4% by the end of 2025, suggesting two or three more cuts this year, before levelling off through 2026. That would mean households and investors having to get used to rates settling at a meaningfully higher level than has been the case in most of the period since the financial crisis in 2008.
