With an outlook uncertain, the Bank of England joins the US Fed in putting interest rates on hold - Insurance News | InsuranceNewsNet

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March 20, 2025 Newswires
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With an outlook uncertain, the Bank of England joins the US Fed in putting interest rates on hold

Associated Press

LONDON (AP) — The Bank of England kept its main U.K. interest rate unchanged at 4.50% on Thursday even though the economy is barely growing and the nation faces more uncertainty in light of the tariff policies being enacted by the Trump administration in the U.S.

The decision by the nine-member Monetary Policy Committee was widely expected, and comes a day after the U.S. Federal Reserve also kept interest rates unchanged.

Minutes from the meeting showed that eight members voted to keep policy unchanged, with one backing a quarter-point reduction.

The rate-setting panel has reduced the Bank of England’s main rate from a 16-year high of 5.25% by a quarter of a percentage on three occasions since last August, most recently in February, after inflation fell from the multi-decade highs of over 10% reached in the wake of the sharp spike in energy prices following Russia's full-blown invasion of Ukraine in early 2022 .

However, inflation, at 3%, remains above the bank’s 2% target and is set to push higher in coming months, even without accounting for any tariffs imposed by the Trump administration. Many economists think it could rise as high as 4% in the coming months as businesses are raise prices as a result of a big increase in the minimum wage and higher payroll taxes.

“There’s a lot of economic uncertainty at the moment," said Bank Gov. Andrew Bailey. “We still think that interest rates are on a gradually declining path, but we’ve held them at 4.5% today.”

If policymakers continue to pursue their recent gradual approach, then another cut is likely in May, when they will be armed with the bank’s latest economic projections and Bank Gov. Andrew Bailey next holds a press conference.

Bailey said rate-setters will be “looking very closely at how the global and domestic economies are evolving” and that whatever happens, "it’s our job to make sure that inflation stays low and stable.”

The U.S. Federal Reserve, which kept borrowing rates unchanged Wednesday, also expressed uncertainty about the near-term economic outlook, particularly in light of U.S. President Donald Trump’s tariff policies, which economists worry would lower global growth and lead to an uptick in prices.

The British economy, the sixth-largest, eked out modest growth of 0.1% in the fourth quarter, a hugely disappointing outcome for the new Labour government, which has made boosting growth its number one economic policy. Since the global financial crisis in 2008-2009, the British economy’s growth performance has been notably below its long-run average.

Critics say Treasury chief Rachel Reeves is partly responsible for the gloomy economic news since Labour returned to power in July after 14 years, because she was overly downbeat when taking on her role and has since increased taxes, particularly on businesses.

Reeves, who on March 26 will deliver a keenly-watched statement on the state of the public finances to lawmakers, will be hoping that the Bank of England does cut borrowing rates further over coming months as it will likely help shore up growth.

Economists said the latest update from the bank did little to clear up the outlook, though most said a further quarter-point reduction in May remained on the cards.

“But beyond that, much will depend on trade policy out of the U.S. and the fiscal announcements coming from the Chancellor,” said Luke Bartholomew, deputy chief economist at asset management firm Aberdeen.

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