The Bank of England (BOE) kept interest rates at 4.5% in an 8-1 vote, showing more policymakers opting for a cautious approach. The decision surprised markets, as many had expected more support for an immediate rate cut. The BOE follows other central banks in adopting a more cautious approach amid global uncertainty triggered by President Donald Trump’s trade tariffs.
The probability of a rate cut in May has dropped to 65% from 70% previously. The BOE’s decision showed a more “hawkish” bias than at previous meetings, with concerns focused on continued wage growth and rising costs that could put pressure on inflation. Two members who previously supported a rate cut, including Deputy Governor Dave Ramsden, now opted to keep rates at current levels.
The fallout from the US tariffs has created greater uncertainty for the UK economy, although the country has not yet felt the full impact of the global trade war. The BOE warned that the global trade war could have a major impact on the UK, with inflation uncertainty rising. At the same time, the UK employment sector has shown resilience, with wage growth remaining strong and unemployment stable.
The BOE expects inflation to almost double its 2% target, reaching 3.75% by the end of the year. While this spike in inflation is expected to be temporary, the BOE is concerned about high inflation expectations among consumers and businesses, which could push up wages and prices. The decision to ease monetary policy will depend on how wage growth and price pressures develop in the coming months.
While the BOE remains committed to its “gradual and cautious” guidance on monetary policy easing, it signalled that there is no certainty about a rate cut at its next meeting. With economic conditions still uncertain, markets are now waiting to see whether the UK government will take additional steps in next week’s Spring Economic Statement to address the challenges of rising living costs and global uncertainty.
