The Bank of England (BoE) is expected to keep interest rates unchanged this Thursday, as it cautiously navigates economic uncertainty driven by U.S. trade policies and mixed signals from the
UK economy.
A recent Reuters poll of 61 economists unanimously predicted that the BoE would maintain its benchmark interest rate at 4.5%. The first rate cut is anticipated in May, with further reductions likely in August and November.
Since the central bank’s last rate cut on February 6, UK economic data has been sparse. However, financial markets remain unsettled by U.S. President Donald Trump’s shifting stance on tariffs, which has raised concerns about global inflation and economic stability.
Global market turmoil and European resilience
Stock markets have struggled in recent weeks, particularly in the U.S., where more than $5 trillion in market value has been erased over fears that Trump’s trade policies could tip the country into recession. In contrast, Germany’s announcement of a €500 billion infrastructure and defense investment plan has provided a boost to European manufacturing stocks.
"Global developments around tariffs and defense spending create mixed implications," said Elizabeth Martins, senior UK economist at HSBC. "Given the uncertainty over how these factors will affect the UK economy, the BoE is likely to take a wait-and-see approach."
A measured approach to rate cuts
While the European Central Bank has aggressively cut rates—lowering them six times since June—the BoE has been more measured, with only one rate cut since last August.
Recent UK economic data presents a complex picture. January saw an unexpected economic contraction, yet inflation expectations for both the near and long term have risen. The BoE’s Monetary Policy Committee (MPC) will review the latest labor market figures before making its decision on Thursday.
"A slowdown in hiring is likely, which could ease wage pressures," said Dean Turner, an economist at UBS Wealth Management. "However, we don’t anticipate a sharp rise in job losses."
The Reuters poll suggests that the MPC will likely vote 7-2 in favor of keeping rates steady, reflecting the cautious stance it has maintained in previous meetings.
Inflation and Ffscal policy in focus
Investors will be closely watching for any shifts in the MPC’s stance, particularly as some members have expressed greater concerns about inflation risks than others.
The committee is also monitoring the government’s upcoming fiscal policy decisions. Finance Minister Rachel Reeves is set to announce new budget measures on March 26, which could influence the BoE’s rate discussions in May.
"The BoE will need to factor in any fiscal tightening from the upcoming budget when it meets in May, and we expect a rate cut then," said J.P. Morgan economist Allan Monks.
Inflation forecasts have been revised upward, with economists now expecting an average inflation rate of 3.0% for 2024, up from a previous estimate of 2.8%. While the unemployment rate is expected to remain stable, most economists believe there is a higher risk of an increase in joblessness.
As the BoE prepares for its next move, policymakers will be weighing global and domestic risks, balancing inflation concerns with economic growth prospects. Photo by Diliff, Wikimedia commons.