Bank of England Keeps Interest Rates Steady as Inflation Concerns Grow
The Monetary Policy Committee (MPC) of the Bank of England has voted overwhelmingly, by a margin of 8-1, to keep interest rates unchanged. This decision highlights a growing sense of unease among committee members regarding the persistent rise in inflation since February.
With inflation anticipated to hit 4.0% in the near future, doubts are emerging over whether it will steadily decline to the 2.0% target by 2026 as previously projected.
"Although inflation is expected to ease later on, the Committee will remain vigilant for any indications of prolonged inflationary pressures," the Bank stated.
Following the announcement, the Pound strengthened against the Euro, extending its daily gains. However, GBP/USD slipped as the US dollar experienced broad-based strength.
The decision comes in the wake of another strong set of wage growth figures released earlier in the day, reinforcing the view that the economy has yet to see the kind of deflationary pressures necessary to justify lowering the Bank Rate to 2.0%.
Additionally, the Bank’s latest inflation expectations survey points to an unsettling rise in inflation concerns, raising the risk of ingrained inflationary trends as workers push for higher wages and businesses adjust their prices accordingly.
Euro Under Pressure Amid Market Jitters and Trade Disputes
The euro remains under strain as financial markets turn increasingly risk-averse. Earlier this week, EUR/USD suffered its sharpest daily drop in March and is now on track for its first weekly decline in three. The recent slide has been compounded by cautious remarks from European Central Bank (ECB) President Christine Lagarde, which have dented confidence in the common currency.
Addressing European lawmakers on Thursday, Lagarde warned of slowing economic growth but downplayed the likelihood of inflation surging if the EU retaliates against US tariffs. She noted that a 25% tariff imposed by the US on European imports could reduce eurozone growth by 0.3 percentage points in the first year, with EU countermeasures potentially deepening the impact to 0.5 percentage points. While the initial effects would be most severe, inflationary pressures are expected to diminish over time, suggesting the ECB is unlikely to respond with rate hikes.
At the same time, developments in Ukraine, including progress towards a ceasefire, have introduced fresh optimism but also new concerns about Europe's economic and energy stability.
Ongoing tensions over US-EU trade relations, including renewed tariff threats from Donald Trump, continue to undermine the euro’s stability. For now, EUR/USD remains in limbo, caught between shifting investor sentiment and economic policy expectations.
US Economic Indicators Show Resilience Amid Uncertainty
US economic data released yesterday painted a mixed picture. Weekly jobless claims saw a slight uptick to 223,000, yet they remain near historically low levels, suggesting that the labour market continues to hold steady despite wider economic challenges.
In contrast, the housing market showed unexpected strength, with existing home sales rising by 4.2% in February to an annualised 4.26 million. This surge was driven by pent-up demand and stable mortgage rates, encouraging more buyers to step back into the market.
