The Bank of England’s Monetary Policy Committee has held UK interest rates at 4.5%, following February’s cut, in line with market expectations. There was an 8-1 split in the voting by the MPC. It follows the Fed decision yesterday to keep US rates on hold. A key factor in this decision is the recent rise in inflation to 3%, exceeding the Bank’s 2% target. However, with increases to employer NICs and the minimum wage taking effect in April—potentially dampening growth and investment—experts still anticipate further rate cuts later this year.
The Bank has also projected that UK inflation could rise to 3.7% between July and September, driven by rising costs for essentials like water, energy, and transport.
Today, industry experts share their insights on the decision and its implications for wealth managers as follows:
Zara Nokes, Global Market Analyst at J.P. Morgan Asset Management (JPMAM) said: “The Bank of England is stuck between a rock and a hard place with inflationary pressures mounting alongside a weak growth outlook. While it may have been tempting for the Bank to cut rates today, ultimately the decision to hold was appropriate. Inflation and wage growth remain sticky and inflation dynamics do not look favourable in the near term as employer tax hikes, price resets and a minimum wage increase all come into effect in April. Some business surveys are sending a weak signal on the employment side, but this morning’s data suggests that the labour market is still holding up. The Bank would be taking a risk to assume that softer surveys will feed through to the hard data and should therefore remain laser focused on the inflation threat.”
Luke Bartholomew, Deputy Chief Economist at Aberdeen, comments;
“No surprises from the Bank of England today at least in its decision to keep interest rates on hold. However, the vote breakdown was more striking with Catherine Mann having gone from voting for a 50bps cut to now voting to keep policy on hold. The Bank has a very challenging economic environment with growth having slowed but inflation pressures remaining elevated. This will keep the Bank on its “gradual and careful” cutting path for now, with another cut likely in May. But beyond that, much will depend on trade policy out of the US and the fiscal announcements coming from the chancellor at the Spring Statement next week.”
William Marshall, Chief Investment Officer – Hymans Robertson Investment Services (HRIS) says:“The Bank of England remains cautious around inflationary pressures in the UK economy. The uncertainty for the BoE has been exacerbated by potential impacts from last October’s Budget as well as unreliable labour market data from the ONS.
“The NI increases announced at the last Budget may lead to businesses pushing up prices. Economic growth has stalled in the UK since last Summer but the significant increase in government spending announced in the Budget should more-than-offset the NI increase and bring about a recovery, adding further to inflationary pressures. On top of this, the potential for an escalating trade war adds an additional cloud of uncertainty to the growth and inflation forecast.“The gilt market will be looking ahead to Chancellor Reeves’ Spring Statement next week. What was supposed to be just an update to the OBR’s forecasts is at risk of becoming a second fiscal event. The expectation is that the combination of a lower growth forecast along with higher government interest expenses will force Ms Reeves to cut spending. The commitment to an increase to defence spending exacerbates this. Investors will be hoping for prudence from the Chancellor.”
Lindsay James, investment strategist at Quilter said: “In line with its counterpart across the pond, the Bank of England has opted to hold rates at 4.5% at its latest monetary policy meeting. Given the continuing uncertainty faced, particularly with expectations for peak 2025 inflation shifting significantly higher to 3.7%at the previous MPC meeting, the Bank’s decision was taken somewhat out of its hands.
“While energy prices have fallen somewhat since then, there remains very little clarity on President Trump’s tariffs and there is a risk that they could prove to be further inflationary. There had been positive comments around the potential for tariff avoidance when KeirStarmer visited the White House, but the UK has since been hit by steel and aluminium tariffs. VAT also appears to be viewed as a variation of a tariff by the US, which risks a response when reciprocal tariffs are announced on 2nd April, so the outlook remains considerably clouded.
“Wage growth data out this morning will also have done little to quell the Bank’s fears. Regular pay, excluding bonuses, rose by 5.9% between November 2024 and January 2025 – still far above the Bank’s 2% inflation target. Elsewhere, however, the labour market is holding up relatively well and unemployment has remained steady.
“Meanwhile, the economy remains under pressure, evidenced by a surprise 0.1% contraction seen in January. With the economy well and truly flatlining, government spending is being forcibly cut to manage the vanishing fiscal headroom. The Spring Statement is now just a week away, and all eyes will be on the Chancellor as she details just how significant the changes will be, and whether there will be any rabbits pulled from hats.
“Market expectations are currently pricing in around two cuts for the remainder of the year, mirroring expectations for the US. The Bank of England will wish to avoid cutting rates too much too quickly for fear of causing further inflationary pressure, so for now this looks reasonable.”
– Jeremy Batstone-Carr, European Strategist, Raymond James Investment Services said: “The Bank of England’s decision to keep the base rate unchanged is in line with its view that any lowering of rates will be gradual and carefully calibrated. In the face of vast uncertainty bearing down on the UK economy’s outlook, rate-setters have rightly chosen to tread cautiously.
“The Bank’s rate setters are trapped by dual pressures of boosting the economy while still keeping the base rate sufficiently restrictive so as to curb inflation. This comes amid forecasts that CPI inflation is expected to increase to 3.7% later this year, with further factors driving price pressures in the short term. As such, the Bank’s reaffirmed commitment to tread carefully reflects the careful balance needed.
“Does the Bank’s caution, coupled with rising inflation over the spring and summer, rule out further rate cuts in the near future? Not necessarily. Ultimately, the Monetary Policy Committee will have to decide whether prevailing downside and upside risks are temporary, and if so, a calibrated loosening of the policy is possible. However, if rising prices are seen to feed inflation expectations, it may be that interest rates will need to remain higher for longer.”
Janet Mui, head of market analysis at wealth manager RBC Brewin Dolphin said: “As widely expected, the Bank of England kept interest rates unchanged. The current and prospective inflation environment raises the bar for an interest rate reduction unless economic growth weakens meaningfully. While the UK economy is broadly stagnating, there is no sign it is falling off a cliff either.
Overall, the MPC vote split is perceived by markets as leaning back to a more hawkish tilt.
With UK wage growth rising still near 6% YoY and the Bank’s own forecast of inflation reacceleration in 2025, it is hard to envisage that the Bank is in any rush to cut interest rates. Gradual and cautious will remain the motto in the near term.”
Rob Clarry, Investment strategist at wealth management firm Evelyn Partners, comments: ‘The MPC continues to face a menacing mix of above-target inflation and elevated wage growth on the one hand, versus a soft labour market and weak economic activity on the other.
‘Although this week’s labour market data painted a slightly improving picture, with the number of employees on payrolls rising by 21,000 in February, compared to the consensus expectation for a 21,000 fall. The unemployment rate remained unchanged at 4.4% and available vacancies remained steady at just over 800k. Could this signal that the labour market is now stabilising following recent weakness?
‘GDP contracted 0.1% on the month in January, although UK GDP had risen by 0.1% in 2024 Q4, above the -0.1% rate that had been expected by the Bank of England.
‘The wage data remains a problem, with regular pay growth in the private sector running at 6.1%—too high to be consistent with the Bank’s 2% inflation target. Meanwhile UK CPI has ticked up in recent months as higher food and core goods prices feed through into the headline measure.
‘In this environment the MPC decided to hold the Bank Rate at 4.5%, remaining data dependent. The MPC’s statement reaffirmed that policy will “continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further”.
‘Markets largely took the decision in their stride, with sterling losing some ground on the dollar and gilt yields holding their gains. Looking ahead, traders assign a 66% probability to a cut at the May meeting and expect the Bank Rate to end the year around 4%.
‘Attention now turns to next Wednesday’s Spring Statement when the Chancellor will outline her plans for the UK economy. The Office for Budget Responsibility (OBR) will also publish its UK economic forecast and an update on government borrowing, where it’s expected that c.£10bn headroom has been wiped out amidst higher borrowing costs and weaker economic growth than forecast.
‘Rachel Reeves faces some difficult decisions to meet her “non-negotiable” fiscal rules, with spending cuts or higher taxes required. Reeves will want to avoid more borrowing given substantial debt issuance already in the pipeline. Work and Pensions Secretary Liz Kendall has pre-emptively announced changes to the welfare system which aim to save £5bn by the end of 2030.
‘On the positive side, after a slow start to his premiership, Keir Starmer has made some major policy changes in recent weeks that could shift the growth dial. Higher defence spending, civil service and NHS reform and closer relations with Europe could all support activity growth. While UK appears well-positioned to avoid the worst of Donald Trump’s wrath amidst growing global trade tensions.’
Patrick O’Donnell, Senior Investment Strategist, Omnis Investments on UK rates said: “The BoE kept rates steady today as widely expected. Cautious easing is likely to remain narrative du jour, with the next cut most likely in May. The MPC will continue to weigh up gloomy sentiment and a high degree of macro uncertainty versus still elevated wages and for now, persistent inflationary pressures. There weren’t too many shocks from the labour market report earlier this morning. Job growth remains ok for now and certainly better than some of the survey indicators. Private sector ex-bonus AWE rose 6.1%, as expected but lower than 6.2% last time. it is still 6.1% though. Redundancies did increase in January and looks like the most significant rise in 4 years. So there are some more cracks beginning to present themselves. Let’s see what inflation brings us next week. In terms of markets, they’ll continue to be driven by technical and sentiment, with April 2nd not that far away.“
Susannah Streeter, head of money and markets, Hargreaves Lansdown said: “Given that storms threaten to whip across the global economy, policymakers have opted not to rock the boat and are keeping rates on hold as they assess risks on the horizon. Like the Fed, the Bank of England has opted for a ‘wait and see’ policy given the uncertainty. Pay growth remains strong, with vacancies rising and so there is concern that inflation will stay stubborn – it’s forecast to rise to 3.75% in the third quarter of this year before falling back – just as the economy has gone into reverse. Stagflation has reared its head and does not look like it’s going to back away soon, which is set to keep decision making difficult.
But concerns about growth may soon start to outweigh worries about sticky prices. The job of policymakers is to look further ahead and try to assess how economic forces will impact consumer prices down the line. Although the UK may appear to be an island cut off from further tariff threats for now, it won’t be isolated from the turmoil given that its trading relationships stretch right across the world. This means that downwards pressure on prices may well filter through sooner rather than later. So, while borrowers are going to have to dig in with more patience, it’s not likely to be long before further cuts land, with May looking increasingly likely.”
Jochen Stanzl, Chief Market Analyst at CMC Markets said: “The differences from the last interest rate decision only become apparent when one delves into the details. As with the Federal Reserve yesterday, it is clear that uncertainty is on the rise. While in February there was no talk of new global and geopolitical developments, the Bank of England now explicitly warns of uncertainty in trade policy, a rise in global financial market volatility, and also points to the large fiscal spending package of Germany. The Bank of England will want to observe the consequences before taking measured steps later in the year.
“It was evident from the outset that nothing today would occur that might be related to a change in the base rate. It now appears that a cut in May is the likely outcome. The Bank of England finds itself in a similar predicament to its American counterpart: it must offset a weakening domestic demand amid an increasingly uncertain global geopolitical and trade policy. It is almost impossible to predict Donald Trump’s next moves in trade policy, and accordingly, it is likely to be equally challenging for the monetary authorities to set an appropriate monetary policy. The recently reported weak GDP data have underscored the urgency for further easing measures. However, the progress in combating inflation does not yet allow the Bank of England to fully commit. Today’s decision in London shows that the Bank would rather take a little more time to assess the complex situation. For the remainder of the year, a cautious, step-by-step monetary policy is to be expected.
“On the trading floor, the decision elicits nothing more than a shrug. Market volatility remains generally low when the reported figures are so close to expectations as they were today.”
Daniele Antonucci, Chief Investment Officer at Quintet Private Bank (parent of Brown Shipley) said: “That the Bank of England left rates unchanged at 4.5% at today’s policy meeting isn’t surprising at all. More surprising is that the Monetary Policy Committee, rather than the expected 7 in favour of no change vs 2 in favour of a cut, voted 8 to 1.
“The reason is higher uncertainty. After all, global trade and geopolitical uncertainty has intensified after the US came up with a range of import tariff announcements which prompted retaliation from some other countries.
“And, at home, the British government’s imminent tax hike for employers was probably behind price increases in the services sector.
With UK inflation stuck firmly above its 2% target, rising to 3% in January, the Bank has cut borrowing costs by less than the European Central Bank and the Fed since last summer.
From an investment point of view, we’ve entered 2025 with a slight equity overweight, given a favourable macro backdrop of still-positive growth and rate cuts. However, the market environment has been challenging as markets are quickly rotating in reaction to a fast-changing narrative. We’ve also adjusted our investment strategy to reflect this leadership change, with a rotation from the US to Europe.
We have increased our exposure to European equities including the UK to a tactical overweight. Improving corporate earnings relative to expectations, more attractive valuations and newly announced government spending, including for defence and infrastructure, were the changes in fundamentals needed to increase our positioning. And, while US tariffs are a downside risk, should the Russia-Ukraine war end we’d see an upside risk for the European markets.
To fund this trade, we’ve sold some US equities. Valuations are demanding, and policy uncertainty is higher. We still think innovation in the US is continuing apace, and AI-related themes remain compelling from a medium-term perspective.
And we maintain our overweight on a US equal-weighted equity index, giving greater emphasis to attractively valued sectors that might benefit from US policies, such as fiscal stimulus and deregulation, from industrials to financials. So, despite reducing US equities, we keep a slight overweight.
While our investment approach is predominantly global, besides the tactical position mentioned above, we’re more involved in UK equities than their weight in global equities by assigning an extra weight to UK equities in our long-term, strategic asset allocation.
We’re also diversified across asset classes and regions, and maintain our exposure to inflation-protected bonds, gold and broad commodities to mitigate a range of risks. On top of that, we maintain our preference for short-dated gilts, while we’re underweight US Treasuries on fiscal concerns.
We cushion bouts of market volatility with equity ‘insurance’ instruments that appreciate when the market falls. This ‘insurance’ instrument worked as expected in the US, allowing us to lock in some profits and partially offset the fall in US equities, and we still hold some protection there, although it will expire in Europe later this month.“
Laith Khalaf, head of investment analysis at AJ Bell, comments:
“The Bank’s rate setters have a lot of flux and uncertainty to deal with, so sitting on their hands is probably the best course of action for now. Domestically, April’s National Insurance hike may have implications for inflation, employment and growth, and the shifting global political and economic picture stemming from Donald Trump’s short time in office lends a further element of instability.
“According to Refinitiv data, the market is still pricing in two rate cuts by the end of this year, but clearly the unpredictable economic situation raises risks to that prognosis, in both directions. We now have seven weeks until the next interest rate decision, which right now feels like a yawning gulf for significant developments to pour into.
“The Bank expects inflation to rise towards a peak in the third quarter of this year, so they may want to get an interest rate cut in before it starts to climb to an embarrassing level. A rate cut won’t have its full effect until 12 to 18 months after the decision, but it’s easier to justify loosening policy when CPI inflation is nearer to 3% than 4%.
“The rate-setting committee as a whole became moderately more hawkish this time around, with an 8-1 split in favour or maintaining rates, compared to 7-2 last time. Catherine Mann was the dove who has seen enough to shift from wanting a rate cut to 4.25% to vote for staying the course at 4.5%.
“All of this probably means UK consumers and businesses better get used to rates being at or around this level. As far as we can tell any future rate changes are likely to be in a downward direction, but they will be gradual, barring an economic shock which requires the Bank to step in and stimulate the economy.”
Jamie Niven, Senior Fixed Income Fund Manager at Candriam comments:“The MPC voted to maintain the Bank Rate at 4.5% with a slightly less dovish tilt than expected, with only one of the nine committee members preferring a 25bps cut. Clearly, inflation has evolved less favourably than the committee had hoped during the first months of 2025, while Q4 2024 growth was a little better than expected at the February meeting. Therefore, a more measured approach to cutting rates is perfectly logical. It’s clear that the MPC are in wait-and-see mode, trying to determine whether higher (than target) inflation or low growth will be the dominant influence going forward. The biggest concern for them, and the UK economy, is if both persist. Ultimately, we believe weaker growth will ensue with inflation eventually moving back towards target, but it may take some time for this to play out.”
