The Bank of England (BoE) is widely expected to keep interest rates steady at 4.5% during its upcoming policy decision on Thursday, March 20, as policymakers navigate growing economic uncertainty.
The Monetary Policy Committee (MPC) has gradually lowered borrowing costs since August 2023, offering relief to mortgage holders. However, Governor Andrew Bailey has emphasized the need for a “gradual and careful approach” to rate cuts, particularly in light of volatile global conditions.
Key Economic Factors at Play
Inflation and Spending Pressures:
The Consumer Price Index (CPI) has dropped from its pandemic peak of 11.1%, yet remains above the Bank’s 2% target, hitting 3% in January. Rising energy prices, water bills, and transportation costs continue to drive inflationary pressures.
US Tariffs and Global Market Reactions:
President Donald Trump’s recent tariff policies—including new duties on UK steel and aluminum—have triggered stock market declines and heightened global uncertainty. Analysts suggest these factors could slow economic growth and influence the BoE’s rate decisions.
Upcoming UK Tax and Wage Increases:
The Bank must also consider the potential inflationary impact of April’s tax hikes, employer National Insurance contributions, and the National Living Wage increase. These measures could either fuel inflation if businesses pass costs to consumers or lead to higher unemployment.
Expert Views on Interest Rates
Sandra Horsfield (Investec Economics): “Economic uncertainty is an unavoidable constant, but upcoming data will offer clearer insights into inflation trends and business responses.”
Andrew Goodwin (Oxford Economics): The most significant risk to rate cuts is the impact of regulated price increases in April.
Pantheon Macroeconomics: The MPC will assess Trump’s tariff decisions, given their role in equity market volatility and rising global uncertainty.
Rate Cut Outlook for 2024
While the BoE is expected to hold rates steady this week, analysts predict two quarter-point cuts in May and November. The Bank’s response to economic headwinds will be crucial in shaping the UK’s financial stability in the coming months.
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