Bank of England Maintains Interest Rate Steady at 4.5%
The Bank of England, on March 19, kept its interest rate steady at 4.5%.
The central Bank’s decision comes amid growing uncertainty over the UK’s economic growth and escalating trade war.
The Bank of England’s monetary policy committee, which meets every six weeks to set borrowing costs, voted 8-1 to keep the bank rate steady at 4.5%.
The decision comes a day after the US Federal Reserve held interest rates due to uncertainty about the near-term economic outlook.
The meeting minutes showed that the BOE’s eight members voted to keep policy unchanged, with one backing a quarter-point reduction.
The Bank started cutting rates in August 2024, reducing the bank rate just three times as policymakers evaluate a mixed economic picture.
Read: Bank of England Cuts Key Interest Rate to 4.5%
UK Inflation Over Bank of England Target Objective
In January, UK inflation rose to a 10-month high of 3%, above the Bank of England’s target of 2%.
The fear is that inflation may rise as high as 4% in the coming months.
The increase was driven by VAT on private schools and a jump in airfares because of a shift in the timing of the Christmas holidays.
Also, Food inflation has risen, but food prices can be volatile. The Bank is more interested in services inflation, which better indicates domestically generated pressures. This came in at 5%, below the Bank’s forecast.
Unfortunately, the headline rate is expected to hit 3.7% by the summer due to a surge in energy prices and rising water and council tax bills from April.
Weak Economic Growth
The economy contracted by 0.1 % at the beginning of the year, and the labour market is cooling.
The British economy, the sixth-largest, contracted by 0.1% in January following the 0.4% growth seen in December 2024.
The figure is a massive disappointment for the new Labour government, which has made boosting growth its number one economic policy.
Since the global financial crisis 2008 2009, the UK economy’s growth performance has been notably below its long-run average.
Analysts say Chancellor Rachel Reeves is partially responsible for the gloomy economic news. Since Labour returned to power in July after 14 years, she has been highly pessimistic about the UK economy.
Trade War Concerns
The UK is not in the US president’s direct firing line bar tariffs on some metals. Still, the Bank of England is concerned about the escalating trade war between the US and its key trading partners.
High tariffs lead to higher manufacturing costs, which would spur higher inflation and weak growth.
The US Federal Reserve, which kept borrowing rates unchanged on March 18, expressed concerns about the near-term economic outlook.
