Interest charges set to remain put amid ‘fog of uncertainty’ over Trump tariffs

The Bank of England is widely predicted to maintain its current interest rate amidst uncertainty surrounding US President Donald Trump’s trade tariffs and impending UK tax increases.

Experts anticipate the Monetary Policy Committee (MPC) will hold rates at 4.5 per cent on Thursday, continuing the gradual easing of borrowing costs initiated in August 2024.

This policy has provided some relief to borrowers through lower mortgage rates.

However, Bank of England Governor Andrew Bailey has emphasised a cautious approach to further rate reductions, citing the need to closely monitor both domestic and global economic shifts.

A key concern is the recent resurgence of UK inflation, driven primarily by rising energy prices, water bills, and bus fares.

Sandra Horsfield, an analyst at Investec Economics, described recent economic data as “bittersweet”.

While positive in some respects, the rise in the Consumer Prices Index (CPI) inflation rate to 3 per cent in January presents a challenge for policymakers, she said.

“But the 0.2 percentage points downside surprise in the services inflation rate, the stickiness of which has presented the main concern for the MPC even as overall inflation has fallen, will have been met with some relief,” she said.

Policymakers will also be considering the inflation impact of possible spending cuts in the Government’s spring statement, which will be unveiled at the end of this month, as well as new US tariffs on UK steel and aluminium.

“There will also be evidence soon, rather than merely forecasts, of how firms are handling the rises in employer national insurance contributions and the minimum wage,” Ms Horsfield added.

“Murky as the picture looks now, some things will become a lot clearer soon,” she said, adding: “The fog of uncertainty is an unavoidable constant in economic forecasting.”

Andrew Goodwin, chief UK economist at Oxford Economics, said the “most obvious threat” to the path of interest rate cuts “will be evidence of the impact of April’s increases in regulated prices, employers’ national insurance contributions, and the national living wage”.

The Bank has previously said the extra costs for businesses could risk putting more people out of work, or add to inflation if retailers raise prices for customers.

Mr Goodwin is also expecting the MPC to keep interest rates at 4.5 per cent on Thursday amid heightened uncertainty.

Robert Wood and Elliott Jordan-Doak, economists at Pantheon Macroeconomics, said the MPC will “have to consider US President Trump’s actions” which have been “driving an equity market sell-off and skyrocketing uncertainty” and therefore fuelling concerns over the outlook for global economic growth.

But they added that the MPC is “as unable as anyone else to predict Mr Trump’s next move”.

The committee last month insisted that it is not yet known how tariffs – which have been placed on China, Canada and Mexico – will impact the UK economy.

The Pantheon economists predict interest rates will be kept on hold this month – but that two more cuts will come in May and November this year.