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The Bank of England has kept interest rates on hold as it warned of growing economic uncertainty linked to Donald Trump’s trade war.
The central bank’s monetary policy committee, which meets every six weeks to set borrowing costs, voted 8-1 to keep the bank rate unchanged at 4.5%.
Although the decision was widely expected, the vote was more unified than many assumed.
Just one member of the committee, Swati Dhingra, voted to cut rates by 25 basis points. In what may come as a surprise to some, Catherine Mann, who voted for an outsized 50 basis points cut last month, opted to hold.
The Bank kept its guidance unchanged, pointing to “a gradual and careful approach” to rate cuts, but warned it was prepared to keep borrowing rates higher for longer if wage and price growth continues to persist.
Concerns about constrained supply in the economy – which limits the economy’s ability to grow without sparking inflation – have been playing on policymakers’ minds.
The Bank echoed these concerns again today, alongside warnings about “second-round effects” from higher wages and prices, which could cause inflation to spiral. “This would warrant a relatively tighter monetary path,” it said.
Trade war concerns
Central bankers said they were also contending with an increasingly uncertain global outlook.
In minutes of the meeting published alongside the announcement, the Bank said: “Since the MPC’s previous meeting, global trade policy uncertainty has intensified, and the United States has made a range of tariff announcements, to which some governments have responded.
“Other geopolitical uncertainties have also increased and indicators of financial market volatility have risen globally.”
The Bank was relatively sanguine about the impact of Trump’s tariff policy on the economic growth in the UK but said it could not be certain about the consequences for inflation.
Last night the US Federal Reserve kept its key borrowing rate on hold while downgrading growth…
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