The Bank of England (BoE) is expected to keep interest rates at 4.5% this Thursday (March 20), as policymakers tread carefully amid economic uncertainty. Despite gradual reductions in borrowing costs since August 2024, concerns over inflation, global trade policies, and upcoming UK tax changes have slowed the pace of rate cuts.
Why Are Interest Rates Staying at 4.5%?
Governor Andrew Bailey has stressed the need for a “gradual and careful approach” to monetary policy. While inflation has eased from its post-pandemic peak of 11.1%, it still sits above the Bank’s 2% target, reaching 3% in January 2025. Rising costs in energy, water, and transport have fuelled price pressures, making policymakers hesitant to lower rates too soon.
Economists at Oxford Economics and Pantheon Macroeconomics expect rates to remain steady this month, with potential cuts in May and November if economic conditions improve.
Uncertainty Clouds Economic Forecasts
The UK economy faces a “fog of uncertainty”, according to Investec Economics analyst Sandra Horsfield. Policymakers must weigh multiple factors, including:
- US trade policies – President Donald Trump’s new tariffs on UK steel and aluminium could impact business costs and exports.
- April tax and wage changes – Increases in National Insurance contributions and the National Living Wage could strain businesses, potentially affecting employment.
- Government spending decisions – The upcoming Spring Statement may introduce spending cuts, influencing inflation and overall economic stability.
Will Rate Cuts Happen in 2025?
While some relief has come from a slower rise in services inflation, experts warn that uncertainty remains high. The BoE has to assess how businesses respond to rising costs before committing to further rate cuts.
Pantheon Macroeconomics economists Robert Wood and Elliott Jordan-Doak caution that Trump’s trade policies have already caused stock market volatility, making it difficult to predict future economic conditions.
“The Bank’s committee is as unable as anyone else to predict Mr Trump’s next move,” they noted.
Despite these concerns, many economists remain cautiously optimistic about rate reductions later in the year, assuming inflation continues to stabilise.
What This Means for Borrowers
For mortgage holders and businesses, the decision to hold interest rates at 4.5% means borrowing costs remain high for now. However, if inflation falls further in the coming months, the BoE may reconsider its stance and introduce gradual cuts.
The next few months will be crucial in shaping the future of Bank of England interest rates, as policymakers navigate economic challenges both at home and abroad.
