The Bank of England (BoE) is expected to maintain its benchmark interest rate at 4.5% in its March meeting, given ongoing economic uncertainties. Key concerns include global trade tensions, inflationary pressures, and domestic economic stagnation.
The U.K. economy has shown signs of slowing, with weak monthly growth data and upcoming tax changes that businesses fear could hurt investment and job creation. In February, the BoE warned of a temporary inflation rise to 3.7%, driven by higher energy costs, and revised down its 2025 growth forecast.
BoE Governor Andrew Bailey highlighted additional risks from potential U.S. trade tariffs, warning that these could further strain the economy and reduce household spending power.
At the last meeting, seven out of nine monetary policy committee (MPC) members supported maintaining rates, while two, including Catherine Mann, voted for a steeper cut. The division signals uncertainty about the pace of future rate adjustments. Economist James Smith of ING predicts the BoE will hold rates in March but may implement a cut in May. Despite recent surprises, most officials maintain a cautious stance, with inflationary pressures complicating the decision-making process.
The meeting precedes Chancellor Rachel Reeves’ Spring Statement on March 26, where she will outline economic plans amid growing fiscal challenges. The government faces pressure to manage public finances as borrowing costs rise.
The Office for Budget Responsibility (OBR) is expected to downgrade economic forecasts, increasing pressure on Reeves to adjust policies. With higher market interest rates and budget constraints, analysts suggest that Reeves may need to take action to address potential fiscal shortfalls before the next major budget announcement.
While uncertainty persists, the BoE is expected to proceed cautiously, balancing inflation risks with economic growth concerns.