Uncertainty around the political and economic environments in America and parts of Asia has been cited as a reason for the possibility of a base rate hold.
An uncertain global landscape
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said markets were in “choppy waters”, with the central banks of America, England and Japan all preparing to make decisions in the midst of “risky trade currents and geopolitical uncertainty”.
She said all central banks were expected to hold their interest rates.
Streeter added: “Growth is also being put high on the agenda of the UK government, especially given the disappointing reading on Friday showing a contraction in output in January. But the desire to be prudent with the public finances and not break fiscal rules means the government is in a tight spot.
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“Spending cuts are on the cards, with welfare reform set to be at the heart of changes. Given just how elusive growth is in the UK right now and concerns that it will be hidden away for longer given trade headwinds, the Bank of England is expected to embark on multiple rate cuts from May onwards. But patience will be needed from consumers and businesses hoping for a faster cut to borrowing costs.”
The impact of government decisions on the base rate
Richard Hunter, head of markets at Interactive Investor, said the likelihood of a rate cut has been priced out by the markets until May at the earliest.
He added: “The spectre of inflation, and specifically stubbornly high wage growth, continues to tie the hands of the Bank of England at a time when the UK economy is so clearly in need of a shot in the arm.
“The impending fallout from the Budget measures and the generally tough backdrop has also followed on to the performance of the FTSE250, which is now down by 3.1% in the year to date.”
Nathan Emerson, CEO of Propertymark, also said it was “widely anticipated” that interest rates would stay unchanged on Thursday, but with tax rises due in April and “turbulent” wider political and economic landscapes, “this could present implications for the Bank of England when deciding on its next course of action”.
Emerson said: “The majority of the nation will need to see borrowing costs drop in order to find a more affordable balance; however, this must be done at a pace [that] provides a secure path moving forward.”
Heavily dependent on inflation
Nick Mendes, mortgage technical manager and head of marketing at John Charcol, said he expected the base rate to remain the same this month.
“While markets have been speculating about potential rate cuts later in the year, inflation remains too high, making a move this month unlikely,” he added.
CPI inflation was at 3% in January, which was higher than expected and above the Bank of England’s 2% target, Mendes noted.
He added: “This rise, combined with ongoing wage growth pressures, suggests inflation may not be falling as quickly as policymakers had hoped. The bank has been clear that it wants to see sustained progress before considering rate cuts, and this latest data will only strengthen its case for holding steady.
“Economic growth, however, remains weak. The UK economy grew just 1.4% year-on-year in Q4 2024, narrowly avoiding a deeper downturn. While this could justify a rate cut from a growth perspective, the bank’s priority remains price stability over stimulus. Lowering rates too soon could risk inflation resurging, something policymakers will want to avoid.
“For now, the Bank of England is likely to wait and monitor inflation trends before making a move. The market expectation for March is overwhelmingly in favour of a hold, and that seems like the most prudent course of action.”
Mendes said it was possible that the central bank would “start easing policy later in the year”, possibly as early as summer.
He said: “The case for cuts will depend on inflation falling sustainably and wage growth slowing further. If CPI drops closer to the 2% target and economic growth remains weak, the bank will come under increasing pressure to start easing rates to support businesses and consumers.
“However, uncertainty remains. Geopolitical risks, energy prices, and supply chain disruptions could keep inflation elevated, forcing the bank to delay cuts beyond current expectations. The MPC will likely take a cautious approach, only cutting rates when they’re confident inflation won’t rebound.”
Mendes added: “If inflation continues its expected decline, the first rate cut could happen in August, followed by gradual reductions throughout 2025.
“But for now, the bank is likely to sit tight in March and assess the data in the coming months before making any major moves.”
