UK Interest Rates Held at 45 Percent by Bank of England Amid Uncertainty

The Bank of England has decided to maintain interest rates at 4.5 per cent, as the country grapples with persistent inflation and modest economic growth. The Monetary Policy Committee (MPC), responsible for setting rates every six weeks, voted 8-1 in favour of no change. The sole dissenting member, Swati Dhingra, advocated for a 0.25 percentage point cut.

This outcome aligns with market expectations, but some analysts predicted a tighter vote split. The MPC adjusted its economic growth estimate for the first quarter to 0.25 per cent, up from 0.1 per cent in February, signalling cautious optimism. Despite this modest upgrade, concerns about inflation persisting at 3 per cent remain a pressing issue for policymakers.

Andrew Bailey, the governor of the Bank of England, highlighted ongoing uncertainty in the global economy as a critical factor in the MPC’s decision. He stated, “We still see interest rates on a gradual downward path, but today we’ve made the choice to hold steady.” The committee cited the need for an accumulation of evidence on the inflation trajectory before considering further rate cuts.

Since last summer, the MPC has reduced rates three times, down from a 16-year peak of 5.25 per cent. Inflation peaked at 11.1 per cent in October 2022 and has since come down significantly. However, rising household bills and global market instability may limit the potential for rapid rate reductions this year.

Market analysts are now forecasting two or three additional rate cuts in 2025, with the next reduction anticipated in May. Rachel Reeves, the Chancellor, has indicated that while rate cuts have eased pressures, further government efforts are vital to reinvigorate growth and stabilise the economy.

Outside the UK, global economic conditions continue to influence the Bank of England’s decisions. Geopolitical tensions, volatile trade policies, and the lingering effects of international inflationary pressures underscore the importance of the MPC’s measured approach in reducing rates while maintaining stability.