The Bank of England is expected to keep interest rates steady at 4.5% as policymakers navigate economic uncertainty, driven by President Donald Trump’s tariff policies and the UK’s upcoming tax changes.
Financial experts widely predict that the Bank’s Monetary Policy Committee (MPC) will hold rates during its meeting on Thursday, maintaining the cautious approach it has taken since it began gradually lowering borrowing costs in August last year.
Despite these reductions, Governor Andrew Bailey has emphasised the need for a measured approach, ensuring that rate cuts do not contribute to inflationary pressures while keeping an eye on both domestic and global economic developments.
Recent inflation trends have added complexity to the decision, with the Consumer Prices Index (CPI) inflation rate climbing to 3% in January due to rising energy prices, water bills, and public transport fares.
Economic analysts have described the latest inflation data as a mixed picture. While the increase in CPI was unwelcome, a slight drop in services inflation provided some relief, as this sector has remained a key concern for the MPC.
Policymakers are also factoring in potential government spending cuts, set to be announced in the spring budget, and the impact of new US tariffs on UK steel and aluminium exports.
Further uncertainty surrounds the effects of April’s increases in employer national insurance contributions and the national living wage, which could influence business costs and, in turn, consumer prices.
The Bank has previously warned that these rising costs could lead to higher unemployment or force businesses to raise prices, adding to inflationary pressures.
Global factors are also playing a role in the Bank’s cautious stance. The MPC will be monitoring the economic fallout from Trump’s latest trade policies, which have contributed to volatility in equity markets and heightened concerns about global economic growth.
However, experts note that predicting the US administration’s next move remains difficult, adding to the overall uncertainty.
While interest rates are expected to remain at 4.5% this month, analysts at Pantheon Macroeconomics anticipate two cuts later in the year, likely in May and November.
The decision will depend on how inflation evolves and whether economic conditions stabilise in the coming months.
