The Bank of England’s Monetary Policy Committee (MPC) voted 8-1 to keep Bank Rate at 4.5% (this rate was reached when they cut by 25 basis points at their February meeting). This follows the decision this week of the US Federal Reserve to hold their interest rates and of the ECB last week to lower rates by 25 basis points.
The vote by the MPC for “no change” was widely expected and continues the trend that started at the end of 2024 of alternating “cut” and “hold” decisions at their meetings. The main theme of the explanations seems to be uncertainty, both within the economy and in the MPC over the way in which consumers and businesses will react in the short-term.
The recent increases in the rate of inflation, taking it to 3.0% in January (the announcement for February is next week following the annual updating of the consumption basket) has also played a part in this. The target rate for the MPC is +2%, ±1 point, so the latest rate is right at the top end of the target range. The increase in January was largely driven by the introduction of VAT on private school fees and the unwinding of some temporary effects in December; a further rise is likely in April when the domestic energy price cap increases and the Bank expects inflation to peak at 3¾% in the 3rd quarter of the year.
The discussion goes back to the February meeting as that was one which included the quarterly Monetary Policy Report – these come every other meeting. Since then, the Bank notes that while UK GDP growth estimates are now slightly stronger than anticipated in that report/forecast, business survey indicators generally continue to suggest weakness in growth and particularly in employment intentions.
At the same time, global trade uncertainty has increased significantly with the fluctuations of announcements by the US President and, in some cases, responses from affected countries. Other geopolitical tensions have also grown and indicators of financial market volatility have risen globally.
For more details, you can get the Monetary Policy Summary and minutes of the MPC meeting from the Bank’s website at https://www.bankofengland.co.uk/monetary-policy-summary-and-minutes/2025/march-2025 or request this from MTA.