The Bank of England has maintained its key interest rate at 4% following a regular policy meeting, citing elevated UK inflation as a major factor. This decision was widely anticipated by markets and comes on the heels of the US Federal Reserve’s benchmark borrowing cost cut, its first in 2025.
Bank of England Governor Andrew Bailey stated, “Although we expect inflation to return to our 2% target, we’re not out of the woods yet, so any future cuts will need to be made gradually and carefully.” Official data indicates UK annual inflation stood at 3.8% in August, with the BoE forecasting it to peak at 4% this month.
Policymakers face the challenge of balancing rising inflation against the country’s sluggish economy and a four-year high in unemployment. In an effort to boost the UK economy, which has been threatened by US tariffs, the BoE trimmed borrowing costs to their lowest level in 2.5 years in August.
Investment strategist Linsday James at Quilter notes that markets are not fully pricing the next rate cut until the end of April. Despite several reductions over the past year, Britain’s economy has struggled to grow following finance minister Rachel Reeves’ tax hikes and public spending cuts after Labour’s general election win in July last year.
The Labour government acknowledges the difficulty in driving economic growth, putting pressure on Prime Minister Keir Starmer ahead of the annual budget announcement in late November. Norway’s central bank also reduced interest rates to 4% to avoid putting pressure on its economy, while the Bank of Canada trimmed borrowing costs this week, citing concerns over US President Donald Trump’s tariffs.
These moves reflect the ongoing efforts by central banks to navigate the complexities of economic growth, inflation, and global trade policies. As economies continue to evolve, the actions of these banks will remain critical in shaping monetary policy and influencing economic outcomes. The decision by the Bank of England to hold its rate underscores the delicate balance between controlling inflation and supporting economic growth, a challenge faced by many countries in the current economic landscape.
