Bank of England expected to hold interest rates at 4.5% amid economic uncertainty

The Bank of England is widely expected to maintain interest rates at 4.5% when its Monetary Policy Committee (MPC) meets on Thursday.

Despite previous rate cuts and a slowing economy, persistent inflation concerns and global economic uncertainty are likely to keep the central bank cautious.

On Monday, the UK’s 10-year gilt yield remained near a two-month high at 4.65%, reflecting market unease ahead of the upcoming decision.

TAX HIKES

February saw the Bank of England lower interest rates from 4.75% to 4.5% while also revising its 2025 GDP growth forecast downward to 0.75%. This adjustment was made amid concerns over tax hikes, trade uncertainty, and weakening consumer demand.

While some policymakers had hoped that further rate cuts could stimulate growth, inflation remains a key challenge.

Analysts predict that additional cuts will likely be postponed until later in the year, as the central bank aims to balance economic support with price stability.

ABOVE TARGET INFLATION

The latest inflation data shows core inflation still hovering above the Bank’s 2% target, adding pressure to keep rates steady for now.

Meanwhile, the UK labour market is showing signs of strain. Unemployment is projected to rise to 4.5%, while wage growth continues to slow. A cooling job market, combined with higher borrowing costs, could weigh on consumer spending and business investment in the coming months.

Investors and businesses are also closely watching Chancellor Rachel Reeves’ upcoming Spring Statement on March 26.

The statement is expected to provide further clarity on the government’s fiscal policy, including potential measures to support economic growth. Any significant policy changes could influence the Bank of England’s future interest rate decisions.

BORROWING COSTS NEED TO DROP

Nathan Emerson, Chief Executive of Propertymark, the professional body for property agents, says: “It’s widely anticipated that interest rates will remain unchanged on Thursday.

“However, with tax increases due in April and elements of both the wider political and economic landscapes being turbulent in some respects, this could present implications for the Bank of England when deciding on its next course of action.

“The majority of the nation will need to see borrowing costs drop in order to find a more affordable balance; however, this must be done at a pace which provides a secure path moving forward.”