Bank of England leaves interest rates on hold despite ‘intensifying’ trade war uncertainty – business live
Bank of England leaves interest rates on hold
Newsflash: The Bank of England has left UK interest rates on hold at 4.5%, despite concerns that trade conflict could hurt economic growth.
Faced with the dilemma of a slowing economy on one hand, and rising inflation on the other, the Bank’s policymakers have sat on their hands.
The Bank’s monetary policy committee was split, though, 8-1.
One member, Swati Dhingra, voted for a quarter-point cut to Bank rate to 4.25%.
But the other eight members voted for no change, including Catherine Mann who had surprised the City last month by voting with Dhingra for a large rate cut.
Announcing the decision, the Bank says:
As the Committee noted in February, there has been substantial progress on disinflation over the past two years, as previous external shocks have receded, and as the restrictive stance of monetary policy has curbed second-round effects and stabilised longer-term inflation expectations. That progress has allowed the MPC to withdraw gradually some degree of policy restraint, while maintaining Bank Rate in restrictive territory so as to continue to squeeze out persistent inflationary pressures.
Since the MPC’s previous meeting, global trade policy uncertainty has intensified, and the United States has made a range of tariff announcements, to which some governments have responded. Other geopolitical uncertainties have also increased and indicators of financial market volatility have risen globally. The German government has announced plans for significant reform to its fiscal rules.
Key events
Simon Dangoor, head of fixed income macro strategies at Goldman Sachs Asset Management, predicts the Bank of England will cut interest rates once per quarter – despite the uncertainty hitting the economy.
“As expected, rising uncertainty surrounding the inflation and growth outlook has led the BoE to maintain its ‘gradual and careful’ approach towards easing. But the vote split and the decision to take a more meeting-by-meeting approach introduced a somewhat hawkish tone.
“We continue to anticipate quarterly cuts continuing from May, but the outlook from June onwards is two-sided with a slew of domestic and international factors at play, from inflation to geopolitics. Carefully monitoring the data, staying dynamic in managing risks and looking for relative value opportunities remains critical for fixed income investors.”
Chancellor of the Exchequer Rachel Reeves has responded to today’s UK interest rates decison:
“We’ve had three rate cuts since the summer, but there’s still work to do to ease the cost of living.
That’s why I’m fighting every day to put more money in the pockets of working people to deliver our plan for change, and why we protected workers’ payslips with no rise in national insurance, income tax or VAT, boosted the national living wage and froze fuel duty.
In a changing world, I’m determined to go further and faster to kickstart growth, and bring in a new era of stability, security and renewal that protects working people and keeps our country safe.”
Andrew Bailey, governor of the Bank of England, has said the BoE is committed to getting inflation down to its 2% target (from 3% in January)
He says:
“There’s a lot of economic uncertainty at the moment.
“We still think that interest rates are on a gradually declining path, but we’ve held them at 4.5% today.
“We’ll be looking very closely at how the global and domestic economies are evolving at each of our six-weekly rate-setting meetings.
“Whatever happens, it’s our job to make sure that inflation stays low and stable.”
Here’s some expert reaction to today’s interest rate decision:
Nick Lawson, portfolio manager at Julius Baer International, says today’s decision – and the 8-1 split on the MPC – is more hawkish than expected:
There was a flurry of excitement in February, when the arch ‘hawk’, Catherine Mann, performed a spectacular about-turn, from objecting to any cuts to supporting a bumper ‘double’ cut of 0.5%. She appears to have reverted to her original position just a month later, having perhaps seen something in the data she dislikes.
The Bank’s minutes made many references to the UK’s anaemic economic performance. When growth falters, but inflation is benign, the Bank can seek to stimulate activity by cutting the cost of borrowing, however, this meeting suggests slowing growth but persistent fears around inflation. This is not a scenario any central bank wants to face and reflects the ongoing concerns that the UK is sliding towards stagflation.
The minutes also repeatedly referred to the current monetary policy being ‘restrictive’, meaning current levels curtail demand in the economy. While wider data from the economy remains mixed-to-subdued, the labour market is in relatively rude health. Continued wage growth above inflation might support consumption but might also cause the Bank to think twice about further cuts.
Modupe Adegbembo, economist at Jefferies, predicts the Bank will manage three rate cuts this year (that’s one more than the City money markets are pricing in):
“The BoE kept rates on hold as widely expected. The vote split slightly more hawkish than expected, with Mann choosing to no longer support a cut.
“The MPC still backs a ‘gradual and careful’ approach to easing and with rates at 4.50%, they remain restrictive and continue to weigh on economic activity. GDP continues to slow, and we continue to expect the next cut from the BoE in May.
“Like other central banks, the BoE is worried about rising global uncertainty. Trump tariffs and rising trade tensions could be a particular challenge for the UK, as a large importer higher trade could push inflation even higher, but at the same time slower growth in the Eurozone will also weigh on the UK outlook.
We expect three more cuts this year, in May, August and November bringing Bank Rate to 3.75% by the end of 2025. “
Matt Swannell, chief economic advisor to the EY ITEM Club, says the MPC is keeping its cards close to its chest:
“Having taken a surprisingly hawkish turn at its February meeting, it is no surprise that the majority of the MPC voted to keep Bank Rate unchanged at 4.50% at its March meeting. There remains broad agreement across the Committee that interest rates are still restrictive and will likely have to be reduced further. But there was less disagreement on the pace of interest rate cuts than expected, with only one Committee member preferring to lower Bank Rate to 4.25%. With two dovish Committee members voting for no change, it would appear that divisions among the Committee are narrowing. But this shift masks differing opinions on the outlook, as was indicated by recent remarks at the Treasury Select Committee.
“With some key policy changes just around the corner, it appears that the MPC remains uncertain around where it thinks the economy is heading. Ahead of the upcoming change in the National Living Wage and employers’ National Insurance Contributions (NICs), rate setters are waiting to see how businesses adjust headcount, pay and prices, while uncertainty around international trade policy continues to linger. Given these ongoing question marks, it seems likely that the MPC is going to proceed with caution, at least for now.
Next rate cut might not come until August
Borrowers may have to wait several months for a cut to interest rates.
The City money markets now indicate that a rate cut, from 4.5% to 4.25%, is only fully priced in for August. This morning, it was pretty well fully priced in by June.
That suggests that today’s decision is being seen as hawkish – with only one policymaker, Swati Dhingra, voting for a cut today.
Ed Monk, associate director at Fidelity International, says:
“The Bank of England struck a slightly more hawkish tone in holding rates today, highlighting the need to “pay close attention” to any signs of inflation picking up again. Only one member of the MPC voted for a further cut to 4.25% this month, down from two last month.
“The bond market ahead of today’s decision was predicting rates to fall below 4% by the end of 2025, suggesting two or three more cuts this year, before levelling off through 2026. That would mean households and investors having to get used to rates settling at a meaningfully higher level than has been the case in most of the period since the financial crisis in 2008.
May’s Bank meeting could be a nailbiter
The Bank of England is next scheduled to set interest rates in the first week of May – and that meeting could be rather exciting.
The City is really split about what might happen, with the money markets suggesting a 54% chance of no change, and 46% for a cut.
MPC minutes dominated by uncertainties
Uncertainty is the word of the moment!
There are nine references to ‘uncertainty’ in the minutes from the Bank of England’s decision, many citing the lack of clarity over global trade policy.
“Uncertainties” – be they geopolitical, economic, or related to the UK’s fuzzy jobs data – get another eight mentions.
Today’s decision to keep interest rates on hold will be “a palpable letdown” to those households looking for relief from high mortgage bills and businesses preparing for April’s major jump in business costs, including the national insurance hike, says Suren Thiru, ICAEW economics director.
Thiru adds:
“While the vote to ‘hold’ was emphatic, there was enough in the meeting minutes to suggest that rate setters remain concerned over the health of the economy, keeping the door wide open for a May interest rate cut.
“With inflation set to rise further and international headwinds growing, the path to materially lower interest rates remains filled with uncertainty. As such, rate setters will probably continue to maintain their slow and steady approach to loosening policy.”
Bank: hiring has weakened
Bank of England agents across the country have warned that UK firms are cutting back on hiring.
The minutes of this week’s meeting explain:
The latest intelligence from the Agents suggested that employment intentions had weakened, on balance, and more firms had reported hiring pauses or freezes.
These contacts had said that they would review staffing levels through natural attrition or redundancies if the outlook did not improve.
That is likely to reinforce fears that the increase in the minimum wage, and the rise in employers’ national insurance contributions, are deterring firms from taking on staff.
US growth expected to slow amid tariff uncertainty
Trade war uncertainty is also hurting the US economy, according to the Bank of England today.
In the minutes of the interest rate decision, the Bank predicts that US growth will slow, saying:
US GDP had increased by 0.6% in 2024 Q4, in line with the February Report projection.
Going forward, growth was expected to slow on the back of tariff and wider policy uncertainty, among other factors. Indicators of activity for 2025 Q1 suggested a weakening in household consumption growth and consumer confidence, while some surveys of firms’ output and investment expectations had also fallen in February.
The Bank of England warns that geopolitical and global trade policy uncertainty is posing a “downside risk” to many advanced economies, including the United Kingdom.
In a nod to Donald Trump’s flip-flopping over tariffs, its monetary policy committee say that this is “a rapidly evolving situation”, and it’s not obvious how it will affect prices in the UK.
The MPC explains:
The overall effect on UK inflation was less clear at present, and would depend on where other countries’ trade policies settled and how these transmitted through different economic channels, including exchange rates.
The Bank is still forecasting that inflation will rise this year, to a peak of around 3.75% this autumn.
The minutes of this week’s meeting explain:
Twelve-month CPI inflation increased to 3.0% in January from 2.5% in December, slightly higher than expected in the February Report.
Domestic price and wage pressures are moderating, but remain somewhat elevated. Although global energy prices have fallen back recently, they remain higher than last year and CPI inflation is still projected to rise to around 3¾% in 2025 Q3.
While inflation is expected to fall back thereafter, the Committee will pay close attention to any consequent signs of more lasting inflationary pressures.
Bank of England leaves interest rates on hold
Newsflash: The Bank of England has left UK interest rates on hold at 4.5%, despite concerns that trade conflict could hurt economic growth.
Faced with the dilemma of a slowing economy on one hand, and rising inflation on the other, the Bank’s policymakers have sat on their hands.
The Bank’s monetary policy committee was split, though, 8-1.
One member, Swati Dhingra, voted for a quarter-point cut to Bank rate to 4.25%.
But the other eight members voted for no change, including Catherine Mann who had surprised the City last month by voting with Dhingra for a large rate cut.
Announcing the decision, the Bank says:
As the Committee noted in February, there has been substantial progress on disinflation over the past two years, as previous external shocks have receded, and as the restrictive stance of monetary policy has curbed second-round effects and stabilised longer-term inflation expectations. That progress has allowed the MPC to withdraw gradually some degree of policy restraint, while maintaining Bank Rate in restrictive territory so as to continue to squeeze out persistent inflationary pressures.
Since the MPC’s previous meeting, global trade policy uncertainty has intensified, and the United States has made a range of tariff announcements, to which some governments have responded. Other geopolitical uncertainties have also increased and indicators of financial market volatility have risen globally. The German government has announced plans for significant reform to its fiscal rules.
It’s traditional at this time on a Bank of England day to report that tension is rising in the City ahead of the interest rate decision at noon.
But it’s not really accurate today, though.
Investors are confident the Bank will leave rates on hold at 4.5%, with the money markets still indicating there’s a 96% of no change today, and just 4% for a cut.
Kit Juckes, currency expert at Société Générale, says:
The last of today’s central bank meetings will be in the UK at lunchtime.
The market prices two 25bp cuts this year but a move today seems very unlikely. Headline CPI inflation at 3%, and the inflation rates for rental accommodation, education, holidays, and restaurants are all a good bit higher than that.
How can rates be cut against that backdrop? Especially when there is so much uncertain about what is happening in the labour market.
In the gambling world, British bookmaker Corbett has been fined almost £700,000 for social responsibility and anti-money laundering (AML) failings.
The Gambling Commission said Corbett had agreed to pay a £686,070 penalty for failures identified during an investigation into the bookmaker’s AML and safer gambling policies, procedures and controls.
In one breach, the company – which operates 36 betting locations in Britain – failed to identify a customer who staked £23,674 in a 13-day period as someone who may be at risk of gambling harm.
Corbett also allowed a customer to stake £47,000 and lose £14,000 during an eight-month period, without verifying the player’s source of funds.
John Pierce, director of enforcement at the Gambling Commission, said:
“This operator has failed to adhere to vital regulations designed to make gambling safer and free from criminal activity.
As a result, it will not only pay a significant fine but also undergo a rigorous audit to ensure full compliance with anti-money laundering and safer gambling measures.
In addition to the remedial actions already taken, we expect the operator to swiftly and fully implement the audit recommendations, demonstrating clear and measurable improvements in both policy and practice.
Failure to do so will prompt our compliance team to reassess the situation and take further action as necessary.
All operators should carefully consider this case and the price this operator is now paying.”
