The Bank of England (BoE) is expected to keep its benchmark interest rate at 4.5% when it meets on Thursday, as it navigates economic uncertainty, stubborn inflation, and concerns over potential trade tariffs from the United States.
Economic headwinds and inflation pressures
The UK economy has shown signs of stagnation, with monthly GDP data reflecting weak growth. The BoE has already downgraded its 2025 growth forecast and expects inflation to rise temporarily to 3.7%, driven in part by higher energy costs.
Despite these concerns, policymakers appear divided on the timing and pace of future rate cuts. At the BoE’s last meeting in February, a 7-2 vote favored keeping rates unchanged, with Catherine Mann—previously a hawkish policymaker—surprising markets by supporting a 50-basis-point cut.
However, most BoE officials have since taken a more cautious approach. James Smith, an economist at ING, expects the BoE to hold rates this week, delaying a possible cut until May.
“There are visible signs of disagreement at the Bank of England on the pace of rate cuts required this year,” Smith noted. “But with wage growth and inflation remaining sticky, we expect the Bank to keep rates on hold this Thursday.”
Concerns over Trump tariffs
Adding to uncertainty, BoE Governor Andrew Bailey recently warned that President Donald Trump’s proposed tariffs could threaten UK economic growth. Speaking to British lawmakers, Bailey said tariffs would leave UK citizens with “less money in their pockets” and pose “substantial risks” to the global economy.
While the UK is not expected to be directly impacted by a potential US-EU trade war, economists warn that uncertainty over trade policies is already affecting investor and consumer confidence, which could further dampen UK growth.
Budget changes could complicate BoE outlook
The BoE’s decision comes just days before Chancellor Rachel Reeves delivers the UK government’s Spring Statement on 26 March. Reeves is facing mounting pressure over higher borrowing costs, with markets expecting spending cuts or additional tax hikes to keep public finances in check.
The UK’s Office for Budget Responsibility (OBR) is widely expected to downgrade economic growth forecasts, which could further complicate the BoE’s policy path.
Market expectations for rate cuts
Markets currently expect the BoE to cut rates three times this year, with reductions likely in May, August, and November. However, some economists believe that a faster pace of cuts could be necessary if economic conditions worsen significantly.
For now, inflation remains the primary concern for the BoE. UK wage growth remains elevated at 6%, and services inflation is hovering around 5%—both figures that keep pressure on policymakers to proceed cautiously.
With no major shifts in economic conditions since February, analysts expect no changes to interest rates this week, with the first cut likely in May.
