Bank of England Keeps Interest Rates Unchanged at 4.75 Percent

The Bank of England (BoE) has kept interest rates unchanged at 4.75 percent, marking the third consecutive meeting without a change.

The bank maintained that a “gradual approach” to removing monetary policy restrictions remains appropriate.

The decision, supported by a majority vote, reflects the bank’s cautious approach as it balances inflation control with economic growth and employment concerns.

Three members of the Monetary Policy Committee (MPC) preferred to reduce the rate to 4.5 percent, while six members voted to keep it unchanged at 4.75 percent.

The BoE has long stressed that it will keep the monetary policy restrictive for as long as it takes to achieve a sustainable inflation rate, which has been in an upward trajectory for over two years, reaching a peak of 11.1 percent in October 2022.

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Governor Andrew Bailey said the BoE needs to make sure inflation returns to its 2 percent target level on a “sustained basis.”

“We think a gradual approach to future interest rate cuts remains right, but with the heightened uncertainty in the economy we can’t commit to when or by how much we will cut rates in the coming year,” he said.

Uncertain Economic Outlook

The BoE said that most indicators of UK near-term activity have declined, with GDP growth weaker at the end of 2024 than previously expected.

The MPC said that the Budget’s impact on growth and inflationary pressures, among other developments, have created “uncertainties around the economic outlook.”

This includes “significant” uncertainty around how the economy might respond to higher overall costs of employment, including from the increase in employer National Insurance contributions and the National Living Wage, the bank said.

Elsewhere, the policymakers noted the impact of “geopolitical tensions and trade policy uncertainty” on UK economy.

The bank’s report said that the incoming Donald Trump presidency in the United States and the administration’s proposals to increase tariffs could directly affect the British economy alongside global trade.

In the run-up to the election, Trump promised to implement 10 to 20 percent tariffs on all goods coming into the United States, including from the UK. Economists have warned that Britain could be “one of the countries most affected” by the proposed tariffs, leading to a slowdown in growth.

The magnitude of the impact is yet unknown and will depend on the timing of U.S. policies and any subsequent responses from other countries, the MPC said.

Impact on Households

For households, the decision to hold rates means continued pressure on mortgage holders, particularly those on variable rates or nearing the end of fixed-rate deals.

The MPC said that mortgage approvals for house purchases returned to pre-COVID-19 pandemic levels in October, partly owing to a drop in rates for new mortgages after peaking in mid-2023. However, the average rate on all existing mortgages continued to rise as many fixed-rate deals were renewed at higher rates.

Chancellor Rachel Reeves has acknowledged that many British families are “struggling with high costs.”

“We want to put more money in the pockets of working people, but that is only possible if inflation is stable and I fully back the Bank of England to achieve that,” she said.

“Improving living standards across the country is our number one focus, and is why I chose to protect working people’s pay slips from tax rises, froze fuel duty, and increased the national living wage for 3 million people,” she added.

The BoE decision follows an interest rate cut by the U.S. Federal Reserve on Wednesday. In the third consecutive interest rate cut of 2024, the U.S. central bank set its key lending rate in a target range of 4.25 to 4.5 percent.

PA Media contributed to this report.