Bank of England Holds Rates Steady with Cautious Outlook

The Bank of England (BoE) announced its decision to keep the benchmark interest rate unchanged at 4.5% during its March 20 meeting. The Monetary Policy Committee (MPC) voted 8-1 in favor of maintaining the current rate, with only one member advocating for a 25-basis-point cut to 4.25%.

BoE Adopts a Cautious Stance

Joining its central bank peers this month, the BoE’s decision and statement reflect a cautious approach amid growing global economic uncertainties, particularly the escalating trade tensions initiated by the United States. Several central banks in their March meetings have expressed concerns over rising geopolitical and trade risks.

During the BoE press conference, Governor Andrew Bailey stressed the importance of closely monitoring economic developments, cautioning that future rate cuts should not be taken for granted, even as inflation is expected to ease.

Inflation remains a key concern, currently at 3%, still above the BoE’s 2% target. The central bank projects inflation could rise to around 3.75% by Q3, driven by factors such as higher wage growth and upcoming tax increases.

Meanwhile, the UK economy continues to show sluggish growth, contracting by 0.1% in January. Although the BoE has slightly upgraded its GDP growth forecast for Q1 from 0.1% to 0.25%, overall economic activity remains weak.

BoE: The Next Cut?

The BoE maintained a hawkish stance in response to global economic uncertainties and persistent inflationary pressures. With inflation projected to remain elevated through the third quarter of this year and the warn against assumption of cut, the BoE is unlikely to consider any rate cuts before Q3 2025, potentially making the August meeting the earliest window for easing.

Market expectations reflect this cautious outlook. As of March 2025, interest rate futures indicate a 55.6% probability of a 25-basis-point rate cut in August, which would lower the benchmark rate from 4.5%.

Market Reaction: Pound Holds Still

(GBPUSD, Day Chart; Source: Trading View)

Despite the BoE’s hawkish stance, the pound has struggled against the US dollar, showing little strength and even weakening slightly. It continues to face resistance below the key psychological level of 1.3000 and its four-month high.

Technically, the psychological level of 1.3000 pose a major challenge for the Pound against the US Dollar, which could send pound for a corrective after nearly a 2-month strong rally.

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