LONDON — The Bank of England decided to maintain its primary interest rate at 4.50% on Thursday, despite the sluggish growth of the economy and rising uncertainties due to U.S. tariff policies under President Trump’s government.
The decision by the nine-member Monetary Policy Committee was widely anticipated and follows the U.S. Federal Reserve’s move to keep rates unchanged.
Meeting minutes revealed that eight members voted in favor of keeping the policy unchanged, while one member advocated for a quarter-point reduction.
Since August, the Bank of England has lowered its main rate from a 16-year high of 5.25% by a quarter-point on three separate occasions, the latest being in February. This lowering of rates followed a decline in inflation from the peaks over 10%, a result of the sharp increase in energy prices following Russia’s major invasion of Ukraine in early 2022.
However, the current inflation rate stands at 3%, which is still above the bank’s target of 2%, and it is projected to rise in the upcoming months. Many economists anticipate it could reach 4% due to an increase in prices driven by higher payroll taxes and minimum wage hikes.
“There’s a lot of economic uncertainty at the moment,” stated Bank Gov. Andrew Bailey. “We still think that interest rates are on a gradually declining path, but we’ve held them at 4.5% today.”
If policymakers continue with their current cautious strategy, another rate cut could potentially occur in May. At that time, they will have access to the latest economic projections, and Bailey will conduct a press conference.
Bailey also mentioned that rate-setters are “looking very closely at how the global and domestic economies are evolving,” emphasizing the importance of maintaining low and stable inflation.
The U.S. Federal Reserve, having similarly kept borrowing rates steady, also showed concern over the short-term economic outlook, especially amid President Trump’s tariff policies, which economists fear may slow global growth and drive price increases.
The British economy, ranked sixth globally, showed a minimal growth of 0.1% in the fourth quarter. This result was disappointing for the new Labour government that has prioritized economic growth. Since the 2008-2009 financial crisis, the growth performance has lagged behind its historical averages.
Criticism has been directed at Treasury chief Rachel Reeves for the lackluster economic news since Labour’s return to power in July, arguing her initial pessimism and tax increases have hindered economic improvements.
Reeves is slated to present a significant address regarding public finances to legislators on March 26, with hopes that future rate cuts by the Bank of England could help bolster growth.
Economists assert that the Bank’s latest update fails to clarify future prospects, though they suggest a quarter-point reduction in May remains possible.
“Beyond that, much will depend on trade policy out of the U.S. and the fiscal announcements coming from the Chancellor,” noted Luke Bartholomew, deputy chief economist at Aberdeen, an asset management firm.