Bank of England keep interest rate at 4.5%

Bank of England keep interest rate at 4.5%

20 Mar 2025

Simeon Willis, Chief Investment Officer, XPS Group, said: "The CPI inflation figures went in the wrong direction since the last rate cut at the start of February, and whilst the Bank has a secondary objective of supporting growth, which is currently fragile, bringing inflation down to target is its primary objective.

Whilst avoiding a rate cut might appear beneficial for pension schemes – given that lower interest rates generally increase liability values- long-dated gilt yields have been somewhat insensitive to the direction of Bank rate recently. Current sky-high gilt yields are being propped up by other factors, such as the pipeline of gilt sales. Long-term inflation expectations have been moderate and declining, and pension schemes are typically
well-hedged. This means that for many schemes it’s of the greatest importance for the Bank rate to promote economic growth. This will be important in maintaining the UK’s stability and supporting asset markets like UK corporate bonds, in which pension schemes are heavily invested.

As such, the constraint that above-target inflation is placing on the speed of interest rate reductions could be seen as undesirable for many pension schemes."