The Bank of England ignored requests for interest rate reductions today due to concerns inflation is still a threat.
The Monetary Policy Committee stated that the base rate will remain unchanged at 4.5 percent following their recent meeting.
This morning, the members received additional reasons to be cautious due to data indicating that wage growth remains at its peak since last April.
Nevertheless, worries over the broader economic landscape are intensifying, as the job market remains stagnant even before Labour’s national insurance levy comes into play. Donald Trump 's escalating trade war.
The threat of what is known as 'stagflation' has resurfaced, with organizations like the OECD aligning with banks in downgrading economic growth projections.
Rachel Reeves is set to present a vital Spring Statement next week amid her efforts to manage the budget.
The Chancellor has indicated that there won’t be any immediate alterations to taxes, which means she must address an anticipated £15 billion deficit through reductions in government spending.
That was only partly addressed by the benefit cuts unveiled by the government earlier this week.
Since August, the MPC has progressively reduced lending rates, alleviating pressure on certain borrowers who have consequently been able to provide decreased mortgage rates.
This has been facilitated by inflation gradually decreasing from the peak levels observed in 2023 during the height of the cost-of-living crisis.
However, Bank Governor Andrew Bailey has emphasized that the committee intends to adopt a 'measured and cautious strategy' when decreasing interest rates, all while keeping an eye on shifts in both the UK and international economies.
The CPI increased to 3 percent in January, primarily due to rising costs of energy, water charges, and bus fares.
Meanwhile, the UK economy has been precariously close to recession — recording a 0.1 percent decrease in GDP for January — and showing minimal growth with only a 0.1 percent increase in the last quarter of the year.
This week, the OECD cautioned that 'increased division within the worldwide economic system' poses a major worry due to the trade frictions initiated by Mr. Trump.
It was suggested that this could lead to higher global inflation and affect people's standard of living.
Data released today by the Office for National Statistics indicated that regular average annual wage growth remained steady at 5.9% for the three-month period ending in January, maintaining the peak observed since the three months leading up to April of the previous year.
The ONS also noted that wages increased by 3.2 percentage points more than the headline CPI inflation.
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