Bank of England ignoring elevated inflation as flat rates expected

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The Bank of England is expected to keep its policy rate at 4.25%. UK inflation figures remain well above the BoE’s target. GBP/USD maintains its trade in the upper end of the range near 1.3600. The Bank of England (BoE) is set to reveal its latest monetary policy decision on Thursday, coinciding with its fourth rate-setting meeting of 2025. Market analysts anticipate that the central bank will keep its benchmark interest rate steady at 4.25% after the reduction announced during the May 8 meeting. The Monetary Policy Committee’s (MPC) decision will be followed by the release of Meeting Minutes, which will detail the internal discussions that shaped the outcome. As the rate decision appears to be largely anticipated, investors are likely to shift their focus to the anticipated performance of the UK economy, which presents mixed signals. Key considerations will include the potential trajectory of interest rates, the ongoing debate over tariffs, and the recent developments surrounding the US-UK trade agreement. Rates, elevated inflation and tariffs The Bank of England has reduced its policy rate by a quarter point to 4.25% as of May 8, following a notably divided vote among the Monetary Policy Committee (MPC): Swati Dhingra and Alan Taylor supported a more significant half-point cut, while Chief Economist Huw Pill and Catherine Mann argued for keeping interest rates unchanged. The “Old Lady” has updated its inflation forecast for the year and is now projecting a peak of around 3.50%. This adjustment signifies a reduction from a prior estimate of 3.75%, while simultaneously reflecting an increase from the latest official figure of 2.60% noted in March. Experts predict that inflation will reach the 2% target by the first quarter of 2027. The central bank has forecasted a 1% growth rate for the economy this year, an increase from the…