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Bank of England keeps UK interest rates on hold amid jitters over rising inflation Bank of England holds interest rate at 4.75% but warns of UK stagnation risk
(33 minutes later)
Decision to leave borrowing costs at 4.75% was widely forecast, despite worsening picture for economy and jobs Central bank downgrades growth forecast amid threat from budget fallout, rising inflation and Trump trade tariffs
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The Bank of England has kept interest rates on hold amid concerns over rising inflation, despite a worsening economic slowdown and early signs of a slump in the jobs market. The Bank of England has kept UK interest rates on hold but warned Britain’s economy is on the brink of stagnation after Rachel Reeves’s budget as the world economy faces stubbornly high inflation and the risk of Donald Trump reigniting global trade wars.
In a decision widely expected in the City, the Bank’s rate-setting monetary policy committee (MPC) voted by a majority of six to three to leave borrowing costs at the current rate of 4.75%. Keeping interest rates at 4.75% in a widely expected decision, the central bank’s monetary policy committee (MPC) said on Thursday it had slashed its forecasts for the final three months of the year with a prediction of zero economic growth. The Bank had predicted growth of 0.3% as recently as November.
Reflecting a cautious approach to bringing down the cost of borrowing, the central bank said maintaining rates at among the highest levels in 15 years was required to squeeze lingering inflationary pressures out of the economy. Highlighting the chancellor’s £40bn tax-raising budget, alongside rising geopolitical tensions and trade policy uncertainty after Trump’s November election victory, the MPC said growth was faltering while inflation risks remained.
Financial markets had indicated a 90% probability of a hold decision after official figures released on Wednesday showed inflation rose to an eight-month high of 2.6% in November, up from 2.3% in October and above the Bank’s 2% target set by the government. “These developments have generated additional uncertainties around the economic outlook,” it added.
Figures on Tuesday also showed annual wage growth accelerated to 5.2% in October, with fears that bigger payroll costs bills will lead to higher prices adding to the pressure on the Bank to delay more rate cuts. The Bank has trimmed borrowing costs twice this year from a peak of 5.25%, most recently in November. Exposing a split at the heart of the central bank, the MPC voted by a majority of six to three to keep interest rates unchanged. Three members of the nine-strong panel – the deputy governor, Dave Ramsden, and the external economists Swati Dhingra and Alan Taylor – preferred an immediate 0.25 point reduction in borrowing costs amid concerns over the worsening growth outlook.
The Federal Reserve cut US interest rates on Wednesday by a quarter of a percentage point to a range of between 4.25% and 4.5% but suggested it would make fewer rate cuts than expected in 2025. The news sparked a sell-off in financial markets. However, the majority of the committee said there were dangers of inflation becoming entrenched at elevated levels after figures this week showed the headline rate rose further above the Bank’s 2% target to hit 2.6% in November.
Threadneedle Street has signalled that UK borrowing costs are likely to be reduced further. The Bank has said it is monitoring how companies respond to the chancellor Rachel Reeves’s budget, amid warnings that tax increases and the rise in the minimum wage could stoke inflationary pressures. Andrew Bailey, the Bank’s governor, signalled that Threadneedle Street remained ready to cut interest rates in future but sounded a note of caution over the economic outlook. “We think a gradual approach to future interest rate cuts remains right, but with the heightened uncertainty in the economy we can’t commit to when or by how much we will cut rates in the coming year,” he said.
However, activity in Britain’s economy has weakened in recent months, with output shrinking unexpectedly by 0.1% in October. Companies shedding jobs could add to slack in the labour market, where data this week indicated businesses are cutting staff at fastest rate since 2021, fuelling calls for a return to a rate-cutting cycle. The US Federal Reserve cut interest rates on Wednesday by a quarter of a percentage point to a range of between 4.25% and 4.5% but suggested it would make fewer rate cuts than expected in 2025, sparking a sell-off in financial markets.
More details to soon … The Bank of England has signalled that UK borrowing costs are likely to be reduced further. The Bank has said it is monitoring how companies respond to Reeves’s budget amid warnings that tax increases and the rise in the minimum wage could stoke inflation.
However, activity in Britain’s economy has weakened in recent months, with output shrinking unexpectedly by 0.1% in October. Companies shedding jobs could add to slack in the labour market, where data this week indicated businesses were cutting staff at fastest rate since 2021, fuelling calls for a return to a rate-cutting cycle.