The Bank of England has left interest rates unchanged, as expected, at 4.5%, as inflationary pressures continue to hold back firm action to stimulate growth.

Its monetary policy committee voted by a majority of 8–1 for no change. One member preferred to reduce it by 0.25 percentage points, to 4.25%.

At the meeting in February two members voted for a 0.5% cut, but Catherine Mann has gone from voting for a 50bps cut to now voting to keep policy on hold.

This suggests a hardening in the overall view on maintaining current rates to combat sticky inflation and the threat of US tariffs which may increase inflation further.

The Bank said that progress on tackling the growth in prices has “allowed the MPC to withdraw gradually some degree of policy restraint, while maintaining Bank Rate in restrictive territory so as to continue to squeeze out persistent inflationary pressures”.

It added: “Since the MPC’s previous meeting, global trade policy uncertainty has intensified, and the United States has made a range of tariff announcements, to which some governments have responded.

“Other geopolitical uncertainties have also increased and indicators of financial market volatility have risen globally. The German government has announced plans for significant reform to its fiscal rules.

“While UK GDP growth estimates have been slightly stronger than expected at the time of the February Monetary Policy Report, business survey indicators generally continue to suggest weakness in growth and particularly in employment intentions. In recent quarters, subdued activity has been judged to reflect both demand and supply factors.”

The decision followed the same outcome at yesterday’s meeting of the US Federal Reserve.

Alpesh Paleja, deputy chief economist at the CBI, said the Bank had shown “understandable caution” as the CBI’s own surveys show that pricing intentions have picked up again, at least in part reflecting businesses reacting to higher employment costs. 

“The upshot of all this uncertainty is that while interest rates are likely to be cut further this year, the path down will remain gradual.”

Luke Bartholomew, deputy chief economist at Aberdeen Group, said: “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.”

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.” 

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “Like the Federal Reserve, the BoE has opted for a ‘wait and see’ policy, given the uncertainty.

“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.”

The FTSE 100 index edged down by 0.05% to close at 8,701.99, while the FTSE 250 decreased by 0.12%, ending at 20,097.98.

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