The Bank of England has held interest rates unchanged at 3.75%, with policymakers monitoring international economic developments that could affect the UK outlook. Global factors increasingly influence domestic policy decisions.
The monetary policy committee’s 5-4 vote incorporated awareness of international conditions including global growth trends, trade policies, and central bank actions elsewhere. While the focus remains on UK inflation and growth, these international factors create important context.
Developments in major economies, particularly the United States and Europe, affect UK growth through trade linkages and financial market channels. Weaker global demand reduces UK export opportunities, contributing to the downward revision in GDP growth from 1.2% to 0.9%. Trade policy uncertainty adds to business caution about investment.
Central bank policies abroad also matter. If other major central banks are cutting rates aggressively, maintaining higher UK rates could strengthen sterling and reduce import price inflation while hurting exporters. If others are holding rates steady, UK cuts could weaken the currency and raise import prices, complicating inflation control.
Governor Andrew Bailey’s projection that inflation will fall to around 2% by spring incorporates assumptions about global commodity prices, shipping costs, and international supply chains. Disruptions to any of these could derail the forecast. The unemployment projection reaching 5.3% reflects partly the impact of weaker global demand on UK employment. Chancellor Rachel Reeves’s budget measures, including utility bill cuts and rail fare freezes from April, are domestic tools to offset some global headwinds, expected to drive inflation to 2.1% by mid-2026 regardless of international conditions.