Bank of England holds, March Budget statement up next

This morning’s Bank of England decision to hold rates at 4.5% was in line with market expectations. Sterling rose slightly to 83.6p against the euro following the decision, but with
markets still pricing in the Bank Rate to fall to 4% by end-2025. This response was helped by
the dovish tone of the MPC meeting minutes, maintaining guidance of a ‘gradual and careful’
approach to further rate cuts and downplaying recent resilient GDP and employment data and
the 6% pace of private sector earnings growth. The MPC maintains a broad set of indicators still
point to easing pay growth, for example, recent wage settlements of 3-4%.

Looking forward sterling could be hurt by the March 26th Budget statement, if Chancellor of the
Exchequer Rachel Reeves sets out aggressive spending cuts, or on the other hand fails to
convince investors sufficient action is being taken to rein in borrowing. That said, sterling could
benefit should the UK be seen as a haven from Donald Trump’s threat of ‘reciprocal tariffs’ on
the EU and other countries, apparently due to be unveiled on April 2nd.

Read the weekly in full here:

Bank of Ireland Economics Weekly 20th March 2025