The Monetary Policy Committee (MPC) of the Bank of England is expected to maintain interest rates at 4.5% today, despite little improvement in the UK economy and trade concerns driven by the Trump administration casting a shadow over the outlook. Under the pressure of sustained inflation above the 2% target, the nine member committee has chosen to adopt a cautious wait-and-see approach.

Data shows that the inflation rate in the UK climbed to a 10 month high of 3% in January, influenced by the significant increase in minimum wage and payroll tax, which pushed up prices for businesses. According to economists' predictions, inflation may rise to 4% in the coming months, further testing the central bank's policy space.

Since August last year, the Bank of England has lowered interest rates by 25 basis points three times from a 16 year high of 5.25%, with the most recent one implemented in February to address the decades long trend of high inflation and falling back over 10%.

However, current inflation remains above target and is on the rise, prompting the MPC to slow down its easing pace. If the gradual adjustment strategy is maintained, the next interest rate cut may be postponed to May, when the central bank will release its latest economic forecast and President Andrew Bailey will also hold a press conference.

Today's meeting minutes will provide important clues to the market, revealing whether the possibility of a May interest rate cut is as clear as economists expected.

ING economist analysis: "High inflation and economic weakness coexist, and the Bank of England will not rashly cut interest rates in the short term. The rise in corporate costs may exacerbate price pressure

According to market research, traders' expectations for a rate cut in May are about 60%, lower than the general consensus in February, reflecting the weakening of market confidence due to inflation uncertainty.

According to Reuters, the UK economy, as the sixth largest economy in the world, recorded only a weak growth of 0.1% in the fourth quarter, which is undoubtedly a disappointing result for the newly elected Labour government.

The Labour Party regards stimulating growth as its primary economic goal, but since the 2008-09 global financial crisis, the UK economy has consistently performed below the long-term average. According to Reuters, critics believe that Chancellor of the Exchequer Rachel Reeves was too pessimistic after the Labour Party returned to power in July and subsequently raised corporate tax burdens, leading to a setback in economic confidence.

Meanwhile, Trump's trade concerns have added variables to the UK economy. Economists are concerned that the widespread tariffs imposed by the United States on British imports will weaken global growth and push up prices. British Prime Minister Keir Stammer is hoping to reach a moderate trade agreement with the US to avoid tariff shocks.

Kyle Roda, a senior analyst at Capital.com, said, "Trade concerns could trigger global price volatility, and the UK economy will find it difficult to stand alone. The central bank needs to weigh the trade-off between growth and inflation

Affected by the Bank of England's expectation to maintain interest rates, the pound rose to a four month high of $1.3015 today, with a intraday increase of about 0.3%. The US dollar weakened due to the cautious stance of the Federal Reserve, providing upward momentum for the pound. However, if trade concerns intensify, the rebound of the pound may be limited.

Edit viewpoint

The decision of the Bank of England to maintain a 4.5% interest rate today highlights its difficult balance between inflation and growth. The short-term strengthening of the pound is more of a "byproduct" of the weak US dollar, rather than a signal of economic recovery in the UK. Amidst trade concerns and domestic cost pressures, the decision to cut interest rates in May will be a critical juncture.