The Bank of England (BoE) maintained its benchmark interest rate at 4.5% on Thursday, March 20, as policymakers weighed concerns over global trade tensions and signs of stagnation in the UK economy.
The decision, which was widely expected, saw the central bank’s Monetary Policy Committee (MPC) vote 8-1 in favour of keeping rates unchanged. One member of the committee supported a 25-basis-point cut.
Despite the stability in rates, financial markets are closely monitoring the MPC’s stance, with analysts predicting at least two further rate cuts before the year’s end.
The decision comes at a crucial time, with UK economic growth under pressure and inflation still above the Bank’s 2% target.
Borrowing costs and mortgage rates
The BoE’s interest rate decisions influence a wide range of financial sectors, including mortgage rates, business investments, and government borrowing costs.
The nine-member MPC, chaired by Governor Andrew Bailey, meets eight times a year to determine the most effective policy measures for managing inflation and economic growth.
January’s inflation data showed a rise to 3%, reinforcing expectations that the Bank will hold rates steady in the short term. The BoE had previously forecast a temporary rise to 3.7% in the third quarter of this year due to higher energy costs.
Cutting rates too soon could fuel consumer spending and drive inflation higher, a scenario that policymakers want to avoid.
Homeowners and businesses, however, are keenly awaiting future cuts. Lower rates could lead to reduced borrowing costs for mortgages, loans, and credit cards, while also diminishing returns on savings.
Mortgage trends and policy stance
While mortgage interest rates have been declining in recent months, reflecting market expectations of further reductions, the pace of change remains gradual.
The BoE has made three rate cuts since August 2024, bringing the Bank rate to its lowest level in 18 months. However, officials continue to emphasise a cautious approach to monetary easing.
For homeowners, this means uncertainty over the timing of future cuts. While lenders have adjusted rates based on expected declines, the MPC’s warning on inflation has dampened hopes of rapid relief.
Paul Heywood, chief data and analytics officer at Equifax UK, highlighted that inflation risks and economic instability could slow further rate reductions.
Businesses also remain affected by interest rate decisions, as higher borrowing costs limit expansion and investment. While lower rates could stimulate economic activity, policymakers must balance this against the risk of prolonged inflationary pressures.
Economic pressures and policy response
The UK economy has shown signs of weakness, contracting by 0.1% in January. The central bank had already downgraded its 2025 growth forecast in February, halving it to 0.75%.
The backdrop to the decision includes ongoing volatility in global trade, particularly due to shifting policies in the United States.
President Donald Trump’s tariff measures have contributed to market uncertainty, with potential implications for UK inflation and economic growth.
Economic uncertainty extends beyond domestic concerns, with global factors such as US trade policies and geopolitical tensions influencing market sentiment.
Chancellor Rachel Reeves’ upcoming Spring Statement is also expected to provide updated economic projections from the Office for Budget Responsibility, shedding further light on the UK’s fiscal position.
The UK economy remains under pressure, with businesses and households facing cost-of-living challenges. The BoE’s rate decisions will continue to be a focal point for markets, shaping expectations for growth, inflation, and financial stability in the months ahead.
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