Policymakers find themselves in a tight spot ahead of Thursday’s rate decision, with growth remaining sluggish and inflation stubborn.
The Bank of England is expected to hold rates steady at 4.5% this Thursday, following a quarter-point rate cut in February.
Policymakers will be seeking to steer the UK away from stagflation, as growth remains weak and inflation sticky.
Recent figures show the UK economy shrank unexpectedly in January by 0.1%. That was driven by decreased manufacturing output — and comes as a blow to the government ahead of its Spring Statement.
Inflation, on the other hand, is nearing the BoE’s 2% target but remains stubborn. Price pressures rose 3% year-on-year in January, up from 2.5% in the 12 months to December. On a monthly basis, inflation fell by 0.1% in January, compared to a 0.6% fall in the prior year.
“It’s a bit of a tricky time for the Bank of England,” Marion Amiot, chief UK economist at S&P Global Ratings, told Euronews.
“We’ve seen that inflation has fallen…but the strength of the wage growth profile has been quite surprising if you look at the weakness of the economy at the same time. It points to an underlying weakness in the country’s ability to grow,” she noted.
“We might see two more rate cuts this year,” Amiot said, “but definitely not this week”.
Excluding bonuses, the annual growth in employees’ average earnings was 5.9% in October to December 2024, according to the latest figures from the Office for National Statistics (ONS). That’s up from 5.6% in the previous quarter.
The Bank of England will also be watching trade decisions made by the US administration.
Amiot argued that the UK is not “too exposed” to a potential tariff war sparked by President Donald Trump. Even so, she noted that uncertainty over trade policies is denting investor and consumer confidence, hitting UK growth.
Watch the full interview above.
