Bank of England, the Royal Exchange and the statue of the Duke of Wellington in the City of London on 19th February 2025 in London, United Kingdom.
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The Bank of England left interest rates unchanged Thursday as the U.K. economy contends with uncertainty around global trade and looming stagnation at home.
The widely anticipated decision keeps the central bank’s benchmark interest rate at 4.5%.
In a statement, the central bank said that its Monetary Policy Committee voted in favor of leaving rates unchanged with an 8-1 majority. One MPC member voted for a 25-basis-point reduction.
“Since the MPC’s previous meeting, global trade policy uncertainty has intensified, and the United States has made a range of tariff announcements, to which some governments have responded,” the statement said.
“Other geopolitical uncertainties have also increased and indicators of financial market volatility have risen globally.”
The decision comes at a time marked by prospective economic headwinds abroad and at home. At a global level, this includes the frequent shifts, lack of clarity and conflict surrounding U.S. President Donald Trump’s trade tariffs, along with their potential impact on U.K. inflation and economic growth.
The U.K. economy has been showing signs of weakening, contracting by 0.1% month-on-month in January.
The BOE in February halved its 2025 growth forecast for the U.K. to 0.75%.
On Thursday, the central bank said that recent business indicators suggested weakness in economic growth and employment intentions.
In February it had also said it was expecting inflation to temporarily rise to 3.7% in the third quarter of this year, as energy costs are set to accelerate. U.K. inflation picked up sharply to a hotter-than-expected to 3% in January.
Looking ahead, the central bank said that, based on its medium-term expectations for inflation, “a gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate.”
However, the BOE noted that this would depend on how the economy develops going forward.
“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,” it said.
“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.”
Thursday’s meeting comes just days before U.K. government taxation changes come into force that have proven unpopular with businesses, which say their rising tax burden could dent growth, investment and jobs.
The U.K. Treasury’s “Spring Statement,” during which British Chancellor Rachel Reeves will present an update on her plans for the British economy, is also coming up on March 26. The finance minister is under pressure to cut public spending, raise taxes further or to bend the government’s self-imposed fiscal rules amid higher borrowing costs.
This is a breaking news story, please check back for updates.
— CNBC’s Holly Ellyatt contributed to this report.
