[LONDON] The Bank of England held interest rates at 4.5 per cent and warned against assumptions that they would be cut over its next few meetings as it grappled with deep uncertainty hanging over the British and world economies.
Noting the escalation of global trade tensions kicked off by the United States, the Monetary Policy Committee voted 8-1 to keep rates on hold with only external member Swati Dhingra voting for a quarter-point cut.
Economists polled by Reuters had mostly forecast an 7-2 vote to keep rates on hold.
“There’s a lot of economic uncertainty at the moment,” Governor Andrew Bailey said in a statement.
He said the BOE still thought rates were on a gradually declining path, but it would look “very closely at how the global and domestic economies are evolving at each of our six-weekly rate-setting meetings.”
The Monetary Policy Committee said it still expected inflation pressures would continue to ease but “there was no presumption that monetary policy was on a pre-set path over the next few meetings.”
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All 61 economists polled by Reuters before the BOE’s March meeting had predicted it would keep Bank Rate on hold at 4.5 per cent with the next cut likely in May, with further reductions in August and November.
The MPC repeated its guidance made in February that it was taking a “gradual and careful approach” to further rate cuts.
It said global trade policy uncertainty had intensified after the United States made a range of import tariff announcement which prompted retaliation from some other countries.
The US Federal Reserve on Wednesday cut its economic growth forecasts for this year, raised its inflation projection and said the uncertainty hanging over the economy had increased as it kept borrowing costs on hold.
The BOE said “other geopolitical uncertainties have also increased” and it noted Germany’s huge borrowing plans.
At home, the British government’s imminent tax hike for employers was probably behind price increases in the services sector, the committee said and it noted surveys suggesting weakness in hiring intentions by businesses.
The BOE slightly increased its forecast for a peak in inflation this year, which it now put at 3.75 per cent in the third quarter, up slightly from its estimate in February of 3.7 per cent.
With UK inflation stuck firmly above its 2 per cent target – it rose to 3 per cent in January – the BOE has cut borrowing costs by less than the European Central Bank and the Fed since last summer, contributing to the country’s sluggish growth rate.
The central bank also nudged up its estimate for economic growth in Britain in the first three months of 2025 to 0.25 per cent from a previous projection of an increase 0.1 per cent.
Also on the MPC’s radar is finance minister Rachel Reeves’ budget update speech next Wednesday, in which she is expected to announce cuts to public spending plans, a big component of Britain’s economic growth outlook. reuters
