Bank holds interest rates at 4.5% as inflation rises again

Interest rates have been held at 4.5 per cent by the Bank of England during mounting global uncertainty and growing trade tensions sparked by Donald Trump.

- KARL MATCHETT

That was the level reached in February when the Monetary Policy Committee (MPC) made its first cut since November last year, in so doing bringing the rate down to its lowest level since mid-2023. March’s decision saw the MPC members vote 8-1 in favour of maintaining the 4.5 per cent rate – with one vote for another 0.25 percentage points cut.

While the interest rate is expected to fall further this year, only two more cuts are expected in 2025 as the Bank of England (BoE) tries to maintain a lid on inflation, while costs rise for businesses and the wider economic outlook remains uncertain.

A significant portion of that uncertainty is due to Donald Trump’s trade tariffs being placed – and altered or withdrawn at short notice – which has created unrest in industries and could see the cost of selling their goods to the United States rise significantly. While the UK has yet to implement any retaliatory tariffs, an escalating trade war could significantly hit economic growth as well as consumers’ spending power.

The UK interest rate remains above the eurozone rate, which the European Central Bank cut to 2.5 per cent earlier this month, while on Wednesday, America’s Federal Reserve opted to pause its own cuts, leaving borrowing rates at 4.25-4.5 per cent. The BoE utilises the interest rate as one of the ways to attempt to control inflation, with a target rate of 2 per cent.

Andrew Bailey, governor of the Bank of England, said yesterday: “There’s a lot of economic uncertainty at the moment. We still think that interest rates are on a gradually declining path, but we’ve held them at 4.5 per cent today. We’ll be looking very closely at how the global and domestic economies are evolving at each of our six-weekly rate-setting meetings. Whatever happens, it’s our job to make sure that inflation stays low and stable.”