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United Kingdom: Central Bank decides to keep rates unchanged in March
Latest bank decision: At its meeting on 20 March, the Bank of England (BOE) decided to maintain the bank rate at 4.50%, with one member preferring a reduction to 4.25%.
Monetary policy drivers: The Bank decided to pause its easing cycle—which has seen rates fall by 75 basis points since mid-2024—in light of elevated global economic uncertainty plus domestic headline and core inflation that remain substantially above the BOE’s 2.0% target.
Policy outlook: The Central Bank provided no explicit forward guidance on the future path of interest rates. Our Consensus is currently for around 75 basis points of extra cuts by end-2025, with forecasts ranging from 25 to 175 basis points.
Panelist insight: On the outlook, ING’s James Smith said:
“Though services inflation is still uncomfortably high at 5%, we think it will be closer to 4% and perhaps below by the end of the second quarter. That would represent a more aggressive fall than the Bank of England is forecasting and is premised on the idea that April’s annual price hikes will be less significant than at the same time a year ago. In short, barring a surprise collapse in the jobs market or an equally surprising energy-driven pick-up in services inflation, we think the Bank is poised to continue making quarterly rate cuts throughout 2025.”
EIU analysts said:
“The BoE faces a challenging year as the UK economy experiences both rising inflation and stagnating growth (stagflation). Risks to inflation are tilted to the upside given the increased risk of an escalation in the global US trade war that has begun. We expect three more rate cuts this year, taking the year-end rate to 3.75%.”
