The Bank of England (BoE) held interest rates as 4.5% today (20 March) following its latest Monetary Policy Committee meeting.
It follows the Federal Reserve’s (Fed) same decision to hold rates yesterday in the US.
Both central banks will likely be taking a more cautious approach to monetary easing until greater clarity on how Donald Trump’s fast-evolving trade policies will impact global markets, according to Lindsay James, investment strategist at Quilter.
With little known about how potential tariffs will impact the UK economy, she said the BoE’s decision was “out of its hands”.
“There remains very little clarity on president Trump’s tariffs and there is a risk that they could prove to be further inflationary,” James said.
See also: Fed holds rates as Trump’s tariffs downgrade US growth forecasts
“There had been positive comments around the potential for tariff avoidance when Keir Starmer visited the White House, but the UK has since been hit by steel and aluminium tariffs.”
However, the BoE may not be able to hold rates for long if the UK economy continues to “flatline”, according to MHA economic adviser Joe Nellis.
Gross domestic product in the UK shrank 0.1% in January, so the bank may need to inject some confidence with rate cuts even if inflation rises.
“The bank finds itself in a tough spot — while the resurgence of inflation may put a medium-term break on the rate-cutting programme, lower interest rates could give the economy the boost it so desperately needs,” Nellis said. “Business confidence remains weak, and this halt will not help.”
Markets have preferred more monetary easing today, but J.P. Morgan global market analyst Zara Nokes said it was the right call given the uncertainty of tariffs and chancellor Rachel Reeves’ upcoming spring statement.
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“The bank is stuck between a rock and a hard place with inflationary pressures mounting alongside a weak growth outlook,” she said. “While it may have been tempting for the Bank to cut rates today, ultimately the decision to hold was appropriate.
“Inflation and wage growth remain sticky and inflation dynamics do not look favourable in the near term as employer tax hikes, price resets and a minimum wage increase all come into effect in April.”
This story was written by our sister title, Portfolio Adviser
