Amid extreme uncertainty, the Bank of England keeps interest rates on hold at 4.5%
ITV News Business and Economics Editor Joel Hills reports on the implications of the Bank of England's decision to keep interest rates on hold
If in doubt, do nothing.
The Bank of England has voted to keep the cost of borrowing on hold, the Monetary Policy Committee (MPC) voting 8 - 1 to maintain Bank Rate at 4.5%.
The nudges and winks suggest that more cuts are likely without offering any firm guidance on when.
“We still think that interest rates are on a gradually declining path,” says the governor, Andrew Bailey.
“We’ll be looking very closely at how the global and domestic economies are evolving at each of our six-weekly rate-setting meetings”.
In one sense, little has changed since the MPC met last month.
The economy continues to crawl along in much the way the Bank expected.
Prices in January rose by a little more than forecast but, once again, not in a way that changes the narrative - the Bank’s view remains that the headline rate of annual inflation will peak at around 3.75% at some point in the autumn before easing back to target.
What happens next will depend on President Trump - who has started a trade war that will cause significant economic damage if it intensifies or persists.
It will depend on the conflicts in Ukraine and Gaza - which could impact global energy prices.
And it will depend on how businesses in the UK respond next month when they have to find the money to fund increases in the minimum wage and national insurance.
A survey from the Bank’s network of agents, suggests there may be trouble ahead.
It finds that “more firms are reporting hiring pauses or freezes and saying they will review staffing levels through natural attrition or redundancies if the outlook does not improve”.
The Governor says this is cause for concern.
“When I go around the country with our agents, which I do regularly, I pick up that message as well.”
Bailey added: “I should say, however, that it hasn't yet come through in some of the early indicators that we look at, such as notifications of redundancies, but I'm watching this very carefully because it's one of the things that I think if that starts to come through, we will obviously have to take very serious action”
The minutes of the MPC’s meeting don’t mention Donald Trump by name but do note that “there [has] been a further increase global trade policy uncertainty” and that “it was likely that this elevated uncertainty would persist”.
How big a risk to the UK economy do tariffs and the (very real) threat of tariffs pose? The MPC chooses not to offer a view. Privately, it will be running the numbers.
The markets are betting on two further interest rate cuts before the end of the year. The Bank isn’t leaning into that view but who knows what will happen next?
If in doubt, do nothing.
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