Why have interest rates not changed and what has it got to do with US tariffs?
The PA news agency looks at what the decision means and what the Bank of England expects to happen to the economy.
UK interest rates have been kept at 4.5% after the Bank of England said it wanted to maintain a “gradual and careful” approach to easing policy.
This is partly while it weighs up the impact of global and UK economic developments, particularly following new US tariffs.
The Bank said there was a “lot of uncertainty at the moment” and it was closely monitoring any changes.
Here, the PA news agency looks at what the decision means and what the Bank expects to happen to the economy.
– What happened to interest rates on Thursday?
The Bank of England’s Monetary Policy Committee (MPC) kept interest rates unchanged at 4.5%.
The MPC has been gradually cutting interest rates since August, bringing them down from a peak of 5.25%.
The Bank’s Governor, Andrew Bailey, said on Thursday: “We still think that interest rates are on a gradually declining path, but we’ve held them at 4.5% today.”
Eight members of the nine-person MPC voted for a hold, and one member wanted a 0.25 percentage point reduction.
– What does it actually mean?
The base rate helps dictate how expensive it is to take out a mortgage or a loan, or how much interest banks can be paying to savers.
Finance experts have said the decision to hold means savers will have plenty of options, but homeowners coming to the end of a fixed-rate mortgage will be disappointed.
Average mortgage rates have been edging slightly lower since the last decision in February, but many deals have not changed, according to Rightmove.
It means that some borrowers, primarily those who took out a loan five years ago, will be hit by a big rise in their mortgage payments when they refinance to a higher rate this year.
– Is the cost of living still going up?
Yes, and the Bank of England said it was monitoring this very closely for any signs of long-lasting pressure.
Interest rates are used as a tool by the central bank to control the rate of inflation, which measures how fast prices are increasing over time.
The UK’s main measure of inflation, CPI (Consumer Price Index) inflation, rose to 3% in December, according to the Office for National Statistics (ONS).
The Bank is expecting CPI inflation to continue rising until it peaks at about 3.75% during the summer, before falling back.
Higher inflation will largely be driven by things like energy prices and water bills, which are due to rise from April, and increased bus fares. Some food prices have been rising more quickly as well, such as chocolate and coffee.
The Bank of England has also been keeping an eye on the impact of tax rises announced in last year’s autumn Budget, in particular, a higher rate of national insurance affecting many businesses from April.
– What has this all got to do with US tariffs?
It is clear from the MPC’s summary on Thursday that trade policy in the US and retaliatory tariffs from other countries were an important part of the economic outlook and its discussions on interest rates.
Uncertainties over global trade have “intensified” since the MPC last met in February, it said.
The committee said there were risks to the economic outlook for several countries, including the UK, and uncertainty about how the policy changes could affect inflation.
US President Donald Trump has made a range of tariff announcements since returning to power in January. This has included imposing tariffs on UK steel and aluminium imports, as well as on Canada, China and Mexico.
– How will it affect me?
In short, economists do not know yet.
There are a range of arguments about how tariff policy in the US could affect inflation and living standards in the UK.
It will largely depend on what other countries decide to do in response to new tariffs, and what happens to foreign currency exchange rates as a result.
The MPC said it was a “rapidly evolving situation” and it was monitoring developments very closely.
– When will interest rates drop again?
Economists think there could be up to three more interest rate cuts this year.
Ellie Henderson, an economist at Investec, said the next cut could come when the MPC next meets in May.
“However, this is a deeply uncertain time,” she said.
“As events unfold, these forecasts may have to change, as does the Bank’s approach.
“The MPC will not just have to be gradual and cautious when it comes to policy decisions, but also flexible, prepared to adapt to the rapidly evolving backdrop.”
