LONDON (Reuters) – The Bank of England held interest rates at 4.5% on Thursday and warned against assumptions that they would fall over its next few meetings, as policymakers grapple with deep uncertainty hanging over the British and world economies.
The rate-setting Monetary Policy Committee voted 8-1 to keep rates on hold, with only external member Swati Dhingra voting for a quarter-point cut. Economists polled by Reuters had mostly forecast an 7-2 vote to keep rates unchanged.
Sterling initially trimmed an earlier fall but slowly retreated to $1.2955, down 0.4% on the day and little changed from levels seen just before the rate decision, while London’s blue-chip FTSE stock index extended its fall to trade 0.3% lower.
And in bond markets, the rate-sensitive two-year gilt yield was last down 3.3 basis points on the day at 4.17% versus 4.15% just before the BoE announcement.
COMMENTS:
JESSICA HINDS, DIRECTOR IN FITCH RATINGS’ ECONOMICS TEAM, LONDON:
“The decision to hold rates today was never really in doubt and the large majority voting in favour of it came as no surprise either. Both the minutes and comments from Andrew Bailey suggest that the MPC still plans to cut rates further this year. Our view is that the MPC will cut another three times this year, with the next move in May alongside fresh growth and inflation forecasts. But the minutes also suggested that pay growth will remain key to future MPC decisions, and Committee members will presumably want to see falls in wage growth from current high levels before reducing the restrictiveness of monetary policy.”
DEAN TURNER, CHIEF EURO ZONE ECONOMIST, UBS GLOBAL WEALTH MANAGEMENT, LONDON:
“The Bank of England’s decision to hold rates steady, with a vote split of 8-1, was a slightly more hawkish vote split than many assumed, but no change to rates is in line with expectations.”
“As noted in the minutes, policy uncertainty remains high, with a particular nod given to ‘global trade policy uncertainty’. Although news flow on the domestic economy hasn’t provided much new news for policymakers, next week’s Spring Statement is likely to see the Chancellor announce spending cuts, which may weigh on the economy.”
“Unlike Germany, where the dramatic shift in fiscal policy has brightened the economic outlook, the UK has limited capacity to increase spending without abandoning its self-imposed fiscal rules.”
JEREMY BATSTONE-CARR, STRATEGIST, RAYMOND JAMES INVESTMENT SERVICES, FRANCE:
“In the face of vast uncertainty bearing down on the UK economy’s outlook, rate-setters have rightly chosen to tread cautiously.”
“The Bank’s rate setters are trapped by dual pressures of boosting the economy, while still keeping the base rate sufficiently restrictive so as to curb inflation. Does the Bank’s caution, coupled with rising inflation over the spring and summer, rule out further rate cuts in the near future? Not necessarily.”
“Ultimately, the Monetary Policy Committee will have to decide whether prevailing downside and upside risks are temporary, and if so, a calibrated loosening of the policy is possible.”
YAEL SELFIN, CHIEF ECONOMIST, KPMG UK:
“Today’s decision to keep interest rates unchanged comes amidst a backdrop of heightened domestic uncertainty ahead of next month’s increases in labour and energy costs. Data has also been limited since the February meeting, particularly with the absence of updated forecasts. This strengthened the case for the Bank to maintain its cautious approach and keep interest rates on hold.”
“Recent external developments are also contributing to the uncertain outlook. Downside risks to growth from potential tariffs have increased, while they also pose an upside risk to inflation if sterling weakens, causing higher import costs.”
“Nonetheless, the meeting minutes suggest there is a clear easing bias, despite eight MPC members voting to keep rates unchanged… We expect the Bank to be able to resume cutting interest rates in the upcoming May meeting as it digests the updated forecasts and data over the coming weeks. Overall, we expect base rates to fall to 4% by the end of 2025.”
ZARA NOKES, GLOBAL MARKET ANALYST, JPMORGAN ASSET MANAGEMENT:
“The Bank of England is stuck between a rock and a hard place, with inflationary pressures mounting alongside a weak growth outlook. While it may have been tempting for the Bank to cut rates today, ultimately the decision to hold was appropriate.”
“Inflation and wage growth remain sticky and inflation dynamics do not look favourable in the near term as employer tax hikes, price resets and a minimum wage increase all come into effect in April. Some business surveys are sending a weak signal on the employment side, but this morning’s data suggests that the labour market is still holding up. The Bank would be taking a risk to assume that softer surveys will feed through to the hard data and should therefore remain laser-focused on the inflation threat.”
LINDSAY JAMES, INVESTMENT STRATEGIST, QUILTER, LONDON:
“Given the continuing uncertainty faced, particularly with expectations for peak 2025 inflation shifting significantly higher to 3.7% at the previous MPC meeting, the Bank’s decision was taken somewhat out of its hands.”
“While energy prices have fallen somewhat since then, there remains very little clarity on President Trump’s tariffs and there is a risk that they could prove to be further inflationary.”
“Market expectations are currently pricing in around two cuts for the remainder of the year, mirroring expectations for the U.S.. The Bank of England will wish to avoid cutting rates too much too quickly for fear of causing further inflationary pressure, so for now, this looks reasonable.”
MICHAEL FIELD, CHIEF EQUITY STRATEGIST, MORNINGSTAR:
“In the wake of Trump tariff threats, and inflation spiking once again in the UK to 3%, the slow and steady approach to rate cutting makes sense. Rates are down 75 basis points from their peak, and the Bank of England has been very clear in communicating that it wishes to bring down rates further – something that is currently being appreciated by equity investors, with the FTSE close to all-time highs.”
“We still see plentiful equity market opportunities for investors in the UK and believe further interest rate cuts over the course of 2025 will lighten the load for consumers and businesses alike. This should create a more supportive economic backdrop for commerce generally.”
(Reporting by the Reuters Markets Team; Compiled by Dhara Ranasinghe; Editing by Amanda Cooper)
