BoE raises prospect of pause in rate cuts as uncertainty mounts

The Bank of England (BoE) kept interest rates on hold and warned investors against assuming they would be cut quickly as it grappled with deep uncertainty hanging over the British and world economies.

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The BoE’s rate setters voted 8-1 to keep borrowing costs at 4.5 per cent, with only external member Swati Dhingra voting for a quarter-point cut.

Economists polled by Reuters had mostly forecast a less emphatic 7-2 ‘hold’ vote.

Governor Andrew Bailey, echoing other central bankers around the world, highlighted the sudden lack of visibility about the outlook due largely to the rise in trade tensions kicked off by the United States under President Donald Trump.

The UK economy is also at risk of higher inflation as a tax hike for employers kicks in next month.

Bailey said the Bank of England would have to move carefully with its next rate cuts because inflation pressures remained a risk.

“We need to accumulate the evidence” of a fall in price pressures, Bailey told broadcasters. “We really do have to wait to see that evidence unfold.”

With UK inflation stuck firmly above its 2 per cent target - it hit 3 per cent in January - the Bank of England has cut borrowing costs by less than the European Central Bank and the US Federal Reserve since last summer, contributing to Britain's sluggish economic growth.