Bank of England keeps interest rate at 4.5%

The Bank of England has decided to hold the interest rate at 4.5%, after cutting it by a quarter of a percentage point last month.  

The Monetary Policy Committee (MPC) voted by a majority of 8–1 to leave the rate unchanged.

One member would have preferred to reduce it by 0.25 percentage points, to 4.25%.

In coming to its decision, it explained that since the MPC’s previous meeting, global trade policy uncertainty has intensified, and the US has made a range of tariff announcements. 

It added: “Other geopolitical uncertainties have also increased, and indicators of financial market volatility have risen globally.”

While UK GDP growth estimates have been slightly stronger than expected at the time of the February Monetary Policy Report, it said, business survey indicators generally continue to suggest “weakness in growth” and particularly in employment intentions. 

In recent quarters, subdued activity has been judged to reflect both demand and supply factors.

Twelve-month CPI inflation increased to 3% in January from 2.5% in December, slightly higher than expected in the February report. 

Domestic price and wage pressures, meanwhile, it said 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 says it will pay close attention to any consequent signs of more lasting inflationary pressures.

It said: “Based on the committee’s evolving view of the medium-term outlook for inflation, a gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate. 

“Should there be greater or longer-lasting weakness in demand relative to supply, this could push down on inflationary pressures, warranting a less restrictive path of bank rate. 

“Should there be more constrained supply relative to demand and more persistence in domestic wages and prices, including from second-round effects related to the near-term increase in CPI inflation, this would warrant a relatively tighter monetary policy path.”

It concluded: “The committee will continue to monitor closely the risks of inflation persistence and what the evidence may reveal about the balance between aggregate supply and demand in the economy. 

“Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.”

When the Bank reviewed rates in December, it decided to leave interest rates unchanged at 4.75%, highlighting recent increases in inflation.

Prior to February, the previous cut was in November, when it reduced rates by a quarter of a percentage point, from 5% to 4.75%.

That reduction followed a cut by the same amount in August, from 5.25% to 5%, after it had held rates at a 16-year high since August 2023, as it attempted to tackle rising prices across the UK.

Julian Jessop, economics fellow at the free market think tank the Institute of Economic Affairs, said: “The MPC, like most businesses, investors, and households, is grappling with multiple uncertainties both at home and abroad.

“The big unknowns include the continuing fallout from last October’s Budget and from President Trump’s tariff wars, as well as what the Chancellor will announce next week.

“The MPC’s dilemma is whether to pay more attention to the downside risks to growth or the upside risks to inflation.

“The MPC can and should be willing to look past a temporary increase in inflation if underlying price pressures are easing.

“Moreover, growth in money and credit remains subdued, and interest rates are still above a ‘neutral’ level. As such, there was a strong case for a further cut today.

“Nonetheless, it would be harsh to criticise the majority on the MPC for opting to wait for the Bank’s next economic forecasts in May. But a cut then is still not guaranteed, especially as most of the key April data will not be available until after the meeting.”

David Morrison, senior market analyst at Trade Nation, believes there are good reasons why the Bank would consider easing monetary policy.

“There’s the UK’s dismal growth outlook for a start,” he said. “Sentiment has soured amongst business leaders as they deal with increased employment costs thanks to the rise in employers’ National Insurance. But inflation remains sticky, and this morning’s employment data showed strong average earnings.

“All this comes on the back of the uncertainty over what President Trump will announce next on tariffs. But the Bank’s decision to keep rates unchanged came as no surprise, especially given that Chancellor Rachel Reeves will update her budget plans next week.”