Bank of England set to keep interest rates on hold as global uncertainty grows

UK interest rates are set to stay at 4.5%, with another cut to borrowing costs unlikely while the Bank of England assesses mounting global uncertainty, experts have said.

The Bank of England’s Monetary Policy Committee (MPC) is widely expected to keep interest rates on hold on Thursday.

The MPC has been gradually cutting borrowing costs since August, easing pressure on some borrowers who have been able to offer lower mortgage rates.

This has been possible while the rate of UK inflation has been steadily falling from the highs reached in 2023, at the peak of the cost-of-living crisis.

But the Bank’s governor Andrew Bailey has been keen to stress that the committee wants to take a “gradual and careful approach” to reducing rates while monitoring changes in the UK and global economy.

Consumer Prices Index (CPI) inflation rose to 3% in January, with price pressure mainly being driven by energy prices, water bills and bus fares.

At the same time, the UK economy has been teetering on the edge of decline – with gross domestic product (GDP) rising by 0.1% over the final three months of the year but contracting by 0.1% in January.

The UK’s economic forecast was cut this week by the Organisation for Economic Co-operation and Development (OECD), which warned that “further fragmentation of the global economy” was a significant concern amid trade tensions sparked by US President Donald Trump.

This would likely increase inflation around the world and have an impact on living standards, the OECD warned.

Robert Wood and Elliott Jordan-Doak, economists at Pantheon Macroeconomics, said the MPC will “have to consider US President Trump’s actions” which have been “driving an equity market sell-off and skyrocketing uncertainty” and therefore fuelling concerns over the outlook for global economic growth.

But they added that the MPC is “as unable as anyone else to predict Mr Trump’s next move”.

The committee last month insisted that it is not yet known how tariffs – which have been placed on China, Canada and Mexico – will impact the UK economy.

The Pantheon economists predict interest rates will be kept on hold this month – but that two more cuts will come in May and November this year.

Sanjay Raja, senior economist for Deutsche Bank, said that “the path ahead will be one of careful calibration” for the MPC, adding: “Uncertainty remains elevated.”

He said the MPC will “very likely remain nervous about the jump higher in headline inflation – particularly given the fact that the rise in momentum has been driven by more salient items in the CPI basket” like food and energy.

“Given the broad consensus for a ‘careful’ approach to removing policy restraint, we expect the MPC to be in no rush to cut rates on March 20,” he added.