The Bank of England kept its main interest rate at 4.50% on Thursday, mirroring the U.S. Federal Reserve’s decision to pause rate hikes. Both institutions are facing considerable economic uncertainty.
As global challenges, including U.S. trade policies, continue to influence the outlook, the decision reflects caution in navigating the complex economic environment.
AP News reports that these moves highlight the balancing act central banks are performing to manage inflation while supporting economic growth.
Economic Growth and Inflationary Pressures
The UK economy has struggled to grow, posting just 0.1% growth in the last quarter, reflecting broader challenges faced by economies worldwide. Meanwhile, inflation remains at 3%, above the Bank of England’s target of 2%.
This has led economists to predict that inflation could rise to 4% in the coming months, largely driven by price hikes by businesses responding to a significant increase in the minimum wage and higher payroll taxes.
From a U.S. perspective, these inflationary pressures have ripple effects, particularly in the context of global supply chains and trade relations. Tariff policies from the Trump administration have created additional uncertainty, potentially exacerbating inflation and lowering global growth.
Bank of England’s Response to Economic Conditions
In response to these challenges, Bank Governor Andrew Bailey stated that the Bank’s decision to keep rates steady was due to ongoing economic uncertainty.
There’s a lot of economic uncertainty at the moment – said Bailey.
We still think that interest rates are on a gradually declining path, but we’ve held them at 4.5% today.
He emphasized that the Monetary Policy Committee (MPC) remains cautious, having voted 8-1 to maintain the current rate. One member supported a rate cut, but the majority agreed that the risks of inflation outweigh the benefits of further cuts at this time.
The U.S. Federal Reserve made a similar decision the day before, signaling caution as both central banks navigate a volatile global landscape. Bailey further noted that the Bank would be
Looking very closely at how the global and domestic economies are evolving – adding,
Whatever happens, it’s our job to make sure that inflation stays low and stable.
The Global Context : U.S. Trade Policies and Uncertainty
The uncertainty surrounding U.S. trade policies, particularly those enacted by the Trump administration, has had a direct impact on global economic stability.
U.S. tariffs have created concerns about rising prices and slower global economic expansion, adding to the unpredictability of the global market.
The U.S. Federal Reserve shares similar concerns about the impact of these tariffs, acknowledging that trade policy out of the U.S. will play a crucial role in shaping future economic outcomes. Luke Bartholomew, deputy chief economist at asset management firm Aberdeen, highlighted that
Much will depend on trade policy out of the U.S. and the fiscal announcements coming from the Chancellor.
