Bank of England Likely to Hold Interest Rates Amid Inflation and Global Uncertainty

The Bank of England (BoE) is expected to keep its benchmark interest rate at 4.5% on Thursday as it assesses economic risks from U.S. trade tariffs and the UK’s upcoming tax hike for employers. Despite inflation remaining above its 2% target, the BoE has cut rates less aggressively than the Federal Reserve and the European Central Bank, contributing to sluggish economic growth.

In February, the BoE reduced rates to 4.5% but signaled a cautious approach to further cuts, citing economic uncertainties. These concerns have intensified, with U.S. President Donald Trump set to announce new import tariffs on April 2, creating uncertainty in global markets. Meanwhile, a UK social security tax increase takes effect on April 6, potentially driving up prices and slowing hiring.

Chancellor Rachel Reeves’ budget update next week may also influence the BoE’s outlook, as anticipated public spending cuts could impact economic growth. The central bank has projected inflation to reach 3.7% this year, though some economists warn it could hit 4%, putting pressure on wages and consumer spending.

All 61 economists polled by Reuters expect the BoE to hold rates steady this month, with potential cuts in May, August, and November. Financial markets currently predict only two quarter-point reductions this year. In February, the Monetary Policy Committee (MPC) voted 7-2 for a quarter-point cut, with dissenters favoring a larger reduction.

Another factor in the BoE’s decision is Germany’s €500 billion infrastructure and defense investment plan, along with the EU’s €150 billion defense program, which could boost Eurozone growth and indirectly support the UK economy.