Bank of England holds tight in a fog of uncertainty

Responding to the Bank of England’s decision to hold interest rates at 4.5% Julian Jessop, Economics Fellow at the free market think tank the Institute of Economic Affairs, said:

“The Bank of England’s decision to leave UK interest rates on hold this week was widely expected and consistent with the MPC’s “gradual and careful approach”. There can be good times to surprise the markets, but this probably was not one of them.

“The MPC, like most businesses, investors, and households, is grappling with multiple uncertainties both at home and abroad. The big unknowns include the continuing fallout from last October’s Budget and from President Trump’s tariff wars, as well as what the Chancellor will announce next week.

“The MPC’s dilemma is whether to pay more attention to the downside risks to growth or the upside risks to inflation. The MPC can and should be willing to look past a temporary increase in inflation if underlying price pressures are easing. Moreover, growth in money and credit remains subdued, and interest rates are still above a ‘neutral’ level. As such, there was a strong case for a further cut today.

“Nonetheless, it would be harsh to criticise the majority on the MPC for opting to wait for the Bank’s next economic forecasts in May. But a cut then is still not guaranteed, especially as most of the key April data will not be available until after the meeting.

“In the meantime, anyone looking for a confidence boost from today’s announcement was almost bound to be disappointed. The Bank does not have much of a clue about what happens next either.”