Bank of England keeps benchmark interest rate stable at 4.5%

The Bank of England kept its main interest rate unchanged at 4.5% on Thursday, despite the fact that the economy is barely growing. Policymakers are also contending with increased uncertainty, particularly in light of tariff policies enacted by the Trump administration in the US.

The decision by the nine-member Monetary Policy Committee was widely expected and comes a day after the US Federal Reserve also held interest rates. Minutes from the meeting showed that eight members voted to keep policy unchanged, with one backing a quarter-point reduction.

The rate-setting panel has reduced the Bank of England’s main rate from a 16-year high of 5.25% by a quarter of a percentage on three occasions since last August, most recently in February, after inflation fell from multi-decade highs of over 10%.

Inflation, which currently sits at 3% and remains above the bank’s 2% target, is nonetheless set to push higher in coming months, even without accounting for any tariffs imposed by the Trump administration.

“There’s a lot of economic uncertainty at the moment," Bank of England governor Andrew Bailey said.

“We still think that interest rates are on a gradually declining path, but we’ve held them at 4.5% today.”

If policymakers continue to pursue their recent gradual approach, then another cut is likely in May, when Andrew Bailey next holds a press conference.

Bailey said rate-setters will be “looking very closely at how the global and domestic economies are evolving” and that whatever happens, "it’s our job to make sure that inflation stays low and stable”.

The US Federal Reserve, which kept borrowing rates unchanged on Wednesday, also expressed uncertainty about the near-term economic outlook. It underlined the risks posed by US President Donald Trump’s tariff policies, which economists worry will lower global growth and lead to an uptick in prices.

UK inflation still stubbornly over BoE target

Inflation in the UK rose to a 10-month high of 3% in January - further above the bank's target of 2%. Many economists think it could rise as high as 4% in the coming months, even before accounting for any US imposed tariffs.

The British economy, the sixth-largest, eked out modest growth of 0.1% in the fourth quarter, a hugely disappointing outcome for the new Labour government, which has made boosting growth its number one economic policy.

Since the global financial crisis in 2008-2009, the British economy’s growth performance has been notably below its long-run average. Critics say Chancellor Rachel Reeves is partly responsible for the gloomy economic news since Labour returned to power in July after 14 years, because she was overly downbeat when taking on her role. She is also criticised for increasing taxes, particularly on businesses.

"We think the Committee are comfortable with a market pricing two more cuts this year, which allows for gradual further easing while also giving the MPC to option to skip a quarterly cut this year," Pantheon Macroeconomics said in a note.

"We expect the MPC to lower rates by 25bp in May and November. The tail risks are, however, fat. Persistent domestic inflation pressures lead us to see the MPC’s scenario 3- structural changes supporting inflation- as the most likely, which would be consistent with the MPC holding rates for the rest of the year after a cut in May," it continued.

However, the firm pointed out that some UK business surveys were still very weak, leading to increased concerns about the UK's economic growth.

"The pound has pared losses against the dollar and has jumped to a two-week high against the euro, as traders trim their bets for further rate cuts this year," Kyle Chapman, FX markets analyst at Ballinger Group, said.

"There are no surprises here – every central bank on earth right now is banging on about uncertainty, and it means no reason to expect policymakers to sway from their quarterly pace of rate cuts," he added.

Chapman also warned that things may get harder for the UK economy in the coming months.

"There is a long list of potential shocks coming the UK’s way: tax hikes, tariffs and European rearmament are a few," he continued.