UK interest rates are to hold at 4.5 per cent, with another cut to borrowing costs unlikely.
The Bank of England Monetary Policy Committee (MPC) has been gradually cutting borrowing costs since August, easing pressure on some borrowers who have been able to offer lower mortgage rates. It voted 8-1 to keep rates the same. Swati Dhingra, voted for a sharper reduction to 4.25%.
This has been possible while the rate of UK inflation has been steadily falling from the highs reached in 2023, at the peak of the cost-of-living crisis.
But the Bank’s governor Andrew Bailey has been keen to stress that the committee wants to take a “gradual and careful approach” to reducing rates while monitoring changes in the UK and global economy.
Consumer Prices Index (CPI) inflation rose to 3% in January, with price pressure mainly being driven by energy prices, water bills and bus fares.
At the same time, the UK economy has been teetering on the edge of decline – with gross domestic product (GDP) rising by 0.1% over the final three months of the year but contracting by 0.1% in January.
The UK’s economic forecast was cut this week by the Organisation for Economic Co-operation and Development (OECD), which warned that “further fragmentation of the global economy” was a significant concern amid trade tensions sparked by US President Donald Trump.
This would likely increase inflation around the world and have an impact on living standards, the OECD warned.
Robert Wood and Elliott Jordan-Doak, economists at Pantheon Macroeconomics, said the MPC will “have to consider US President Trump’s actions” which have been “driving an equity market sell-off and skyrocketing uncertainty” and therefore fuelling concerns over the outlook for global economic growth.
But they added that the MPC is “as unable as anyone else to predict Mr Trump’s next move”.
The committee last month insisted that it is not yet known how tariffs – which have been placed on China, Canada and Mexico – will impact the UK economy.
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The Pantheon economists predict interest rates will be kept on hold this month – but that two more cuts will come in May and November this year.
Sanjay Raja, senior economist for Deutsche Bank, said that “the path ahead will be one of careful calibration” for the MPC, adding: “Uncertainty remains elevated.”
Jonny Black, Chief Client Experience Officer at Aberdeen Adviser, said:“Today’s decision to ‘wait and see’ reflects caution in the current global economic and political environment. Those who think more needs to be done to support economic growth, especially after the surprise contraction in GDP revealed last week, may be disappointed with the result.
“For savers, it’s a good reminder to make sure that their financial plans will deliver for any outcome – whether that’s revisiting the balance of cash or non-cash assets they hold, or simply checking that their saving strategy is still supporting their goals amid economic and market volatility.”
Paul Went, Managing Director of Savings at Shawbrook, added: “The Bank of England’s decision to keep interest rates steady could provide a timely boost for savers. With the end of the tax year looming, now is the time to take advantage of the competitive savings rates available and make full use of tax-free allowances.
“The best-kept secret in savings is that you don’t have to choose between security and great returns. Specialist savings banks often offer both. Despite this, our research found that a fifth (21%) of UK adults hesitate to save with specialist or challenger banks, under the false impression that their savings are safer with a mainstream bank. In reality, they could be missing out on both peace of mind and higher interest.”
