The Bank of England has decided to keep interest rates steady at 4.5%, warning against assumptions that cuts will be made in the coming months as economic uncertainty looms over both the UK and global markets.
The Monetary Policy Committee (MPC) voted 8-1 in favor of maintaining the current rate, with only external member Swati Dhingra pushing for a 0.25% reduction. Most economists polled by Reuters had expected a 7-2 vote in favor of keeping borrowing costs unchanged.
“There’s a lot of economic uncertainty at the moment,” said Governor Andrew Bailey, emphasizing that while the bank still expects rates to fall gradually, it will closely monitor economic conditions at its six-weekly rate-setting meetings. The next review is scheduled for May 8.
The Bank of England reiterated that monetary policy is not on a predetermined course, though it continues to anticipate easing inflationary pressures. Following the announcement, the British pound gained slightly against the US dollar, while UK government bond prices saw a modest decline. Market expectations for rate cuts throughout 2025 remained largely unchanged.
Financial analysts noted the central bank’s cautious approach. “The Bank of England is stuck between a rock and a hard place, with inflationary pressures mounting alongside a weak growth outlook,” said Zara Nokes, global market analyst at JP Morgan Asset Management. “It would be risky for the bank to assume that softer surveys will translate into real economic data, so a sharp focus on inflation remains essential.”
A Reuters poll of 61 economists ahead of the MPC’s March meeting unanimously predicted that the Bank Rate would remain at 4.5%, with the first cut likely in May, followed by further reductions in August and November. The MPC reaffirmed its February guidance, stating that it would take a “gradual and careful approach” to any future rate reductions.
The decision comes amid escalating global trade tensions, exacerbated by US-imposed import tariffs that have triggered retaliatory measures from other countries. The US Federal Reserve recently downgraded its economic growth forecast while raising its inflation projections, further increasing uncertainty in the global economy.
European Central Bank (ECB) President Christine Lagarde warned that a 25% tariff imposed by the US on European imports could reduce eurozone growth by 0.3 percentage points in the first year, with retaliatory actions potentially deepening the impact. Meanwhile, the Swiss National Bank has responded to global economic risks by cutting interest rates by 25 basis points, while Sweden’s central bank opted to keep rates unchanged.
Domestically, the Bank of England pointed to increased geopolitical uncertainties and rising government borrowing in Germany. Additionally, the UK government’s planned employer tax hike has likely contributed to price increases in the services sector, with business surveys indicating weakening hiring intentions.
The bank slightly raised its inflation forecast for the third quarter of 2025 to 3.75%, up from the previous estimate of 3.7%. Inflation remains significantly above the 2% target, having reached 3% in January. Since last summer, the Bank of England has reduced borrowing costs more cautiously than the ECB and the Fed, contributing to sluggish economic growth in the UK.
In a slight revision, the central bank now projects a 0.25% GDP growth for the first quarter of 2025, up from its previous estimate of 0.1%. Policymakers will also be closely watching finance minister Rachel Reeves’ upcoming budget update, where she is expected to announce cuts to public spending, a critical factor influencing Britain’s economic trajectory.
