Bank of England chief Andrew Bailey has warned Britain faced ‘a lot of economic uncertainty’ as interest rates were left on hold.
The Bank pointed to the turmoil sparked by US trade tariffs as well as subdued activity in the UK where businesses have been hammered by Labour’s tax hikes.
Yesterday, Bailey said rates were on a ‘gradually declining path’ but officials would pay close attention ‘at how the global and domestic economies are evolving’ before making any further moves.
The Bank’s monetary policy committee (MPC) voted 8 to 1 to keep the benchmark rate at 4.5 per cent.
Markets now expect two more cuts this year. But the Bank warned that ‘elevated uncertainty’ would persist after President Donald Trump imposed tariffs on goods from China, Mexico and Canada, and global duties on all steel and aluminium – sparking tit-for-tat retaliation from some countries.
It said a trade war risked dampening UK growth with the impact on inflation uncertain as UK business surveys ‘continue to suggest weakness in growth and particularly in employment intentions’.
Uncertainties: Bank of England boss Andrew Bailey said interest rates were on a ‘gradually declining path’
That came a day after the US Federal Reserve warned of ‘turmoil’ created by Trump as it cut its US growth forecast and raised the inflation outlook.
The MPC meeting was the last before the Chancellor’s Spring Statement next week, which is expected to see the Office for Budget Responsibility cut growth forecasts.
That will open up a multibillion-pound hole in public finances that she is expected to fill by slashing spending.
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Bank of England Signals Economic Uncertainty Amid Interest Rate Hold
Andrew Bailey, Governor of the Bank of England, has cautioned that the UK economy is facing a period of significant economic uncertainty. This announcement coincided with the central bank’s decision to maintain interest rates at their current level.
Factors Contributing to Economic Uncertainty
The Bank of England highlighted several factors contributing to this economic unease. These include:
- Global Trade Tensions: Disruptions stemming from US trade tariffs are creating volatility in international markets.
- Weak Domestic Activity: The UK economy is experiencing sluggish growth, with businesses reportedly impacted by recent tax increases.
Interest Rates on a ‘Gradually Declining Path’
Mr. Bailey indicated that interest rates are expected to follow a “gradually declining path.” However, he emphasized that policymakers will closely monitor both the global and domestic economic landscapes before implementing any further adjustments.
The Monetary Policy Committee (MPC) of the Bank of England voted by a margin of 8-1 to keep the key interest rate unchanged at 4.5 percent.
Market Expectations and Bank’s Caution
Financial markets are currently anticipating at least two more interest rate reductions within the current year. Despite these expectations, the Bank of England has signaled that “elevated uncertainty” is likely to persist. This concern is largely attributed to the imposition of tariffs by former US President Donald Trump on goods from key trading partners, including China, Mexico, and Canada, as well as global tariffs on steel and aluminum. These measures have triggered retaliatory actions from various nations.
The Bank of England warned that a potential trade conflict presents a risk to UK economic expansion. The impact on inflation remains uncertain, while recent business surveys in the UK suggest ongoing weakness in economic growth and, notably, in hiring intentions.
Uncertainties: Bank of England Governor Andrew Bailey noted interest rates are on a ‘gradually declining path’.
US Federal Reserve’s Concerns Echoed
The Bank of England’s assessment follows closely after the US Federal Reserve also expressed concerns about “turmoil” generated by trade policies. The US Federal Reserve recently lowered its US growth projections and increased its inflation forecast.
Spring Statement and Public Finances
This MPC meeting was the final one before the upcoming Spring Statement from the Chancellor of the Exchequer. The Office for Budget Responsibility is anticipated to reduce growth forecasts in the statement. This revision could potentially create a significant shortfall in public funds, which the Chancellor is expected to address through measures such as spending reductions.
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