UK interest rates are expected to remain unchanged this week, as policymakers weigh up conflicting economic signals at home and abroad.
Economists suggest the Bank of England is likely to pause its rate-cutting cycle amid ongoing uncertainty.
Most forecasters believe the Bank’s Monetary Policy Committee (MPC) will hold interest rates at 4.25 per cent when it meets on Thursday.
The MPC has voted to reduce rates at alternating meetings since last August, when it began easing from a peak of 5.25 per cent.
This was made possible as inflation gradually fell from the highs of 2023, at the peak of the cost-of-living crisis.
The Bank of England is expected to keep the base rate the same
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However, fresh data from the Office for National Statistics (ONS) revealed that inflation unexpectedly rose in April.
The Consumer Prices Index (CPI) rose to 3.5 per cent in April, up from 2.6 per cent the month before.
The ONS later confirmed that an error in vehicle tax data meant the figure should have been slightly lower at 3.4 per cent.
Ellie Henderson, an economist at Investec, said monetary policy appeared to be “in a good position” and gave the Bank flexibility to respond as conditions evolve.
Henderson said: “Ultimately, this is a highly uncertain time that requires a potentially nimble response from central banks, limiting any great foresight.
“Although the June decision might seem clear cut, how the MPC responds to the evolving economic backdrop thereafter much depends on the details of the world in which we find ourselves.”
Her comments come as markets react to fresh geopolitical and economic developments.
On Friday, oil prices surged following an attack by Israel on Iran’s nuclear facilities, prompting fears over disruption to Middle East energy supply chains.
Experts say the softer labour market “will reassure the MPC that it can plan on further rate cuts” in the future
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In the US, investor sentiment has also been shaken by concerns around President Donald Trump’s proposed tariffs, which analysts say have weighed on exports and dampened business confidence.
Meanwhile, new UK labour market data showed signs of weakness. Wage growth slowed in the three months to April, and unemployment rose as businesses faced ongoing cost pressures.
Rob Wood and Elliott Jordan-Doak, economists at Pantheon Macroeconomics, said the softer labour market “will reassure the MPC that it can plan on further rate cuts”, but added: “One month’s data is far from enough to allow the MPC to bin its ‘gradual and careful’ approach to easing monetary policy.”
Bank of England chief economist Huw Pill, who sits on the MPC, recently suggested that previous rate cuts may have moved too quickly. He warned that persistently high wage growth remained a risk to the Bank’s inflation target.
New CPI figures for May will be released on Wednesday, just a day before the MPC’s next interest rate decision. Across the Atlantic, the US Federal Reserve is also expected to leave rates unchanged this week.
With inflation, wages, and geopolitical events all in flux, economists say the Bank is likely to remain cautious and “nimble” as it assesses the road ahead.