The Bank of England has held interest rates at 4.25% in its latest decision, but signalled that reductions could be on the horizon as early as August.
The announcement, which had been widely anticipated by analysts and markets, follows a series of gradual rate cuts since the peak of 5.25% in August 2023. Inflation currently sits at 3.4% — still above the Bank’s 2% target — placing continued pressure on the Monetary Policy Committee to balance economic support with price stability.
Speaking after the decision, Governor Andrew Bailey said: “Interest rates remain on a gradual downward path,” though he warned that “the world is highly unpredictable”. He cited concerns over wage growth, the labour market, and geopolitical instability in the Middle East as factors that could complicate future decisions.
The Bank confirmed it is monitoring recent oil price increases, triggered by escalating conflict between Israel and Iran, stating it would “remain vigilant” to their potential economic effects.
The current pause comes amid sluggish growth in the UK economy, with many calling for a more aggressive pace of rate reductions to stimulate investment. Carsten Jung, senior economist at the Institute for Public Policy Research, said: “The Bank should have lowered rates by 0.25 percentage points today to help struggling people.”
“The government should do more to reduce the cost of living for households right now,” he added, urging measures such as lower electricity prices and targeted support for energy debt.
The Confederation of British Industry (CBI) also responded to the decision, describing it as a “pit stop on the way down”.
CBI lead economist Alpesh Paleja said: “Inflation is likely to be bumpy over the next few months, but the Bank will look through this. There is still entrenched concern about the persistence of underlying price pressures, but we expect three further rate cuts bringing the base rate to 3.5% by early next year.”
Others echoed the view that while the hold was expected, the impact on households remains significant. Suren Thiru, economics director at ICAEW, said the move was “a big blow to people wrestling with high mortgage bills”, noting the Bank’s cautious pace in the face of elevated inflation and geopolitical uncertainty.
Jenny Ross, money editor at consumer group Which?, added: “Anyone concerned about meeting their payments should speak to their lender as soon as possible — they’re obliged to help.”
Although the current decision means no immediate change for most borrowers and savers, financial experts suggest the strong indication of a further cut in August may encourage lenders to begin lowering rates on new mortgage products and loans.
The next Monetary Policy Report, due on 7 August, is expected to provide further clarity on inflation projections and the economic outlook, setting the stage for a potential shift in interest rate policy.
While the UK’s interest rates remain high compared with many other G7 nations, recent months have seen a general downward trend across major economies. The European Central Bank, for example, has halved its main rate from 4% to 2% since last June.
As policymakers weigh domestic pressures and international volatility, the coming months will be crucial in determining the pace and scale of monetary easing in the UK.
Industry and Expert Comments:
Paul Noble, CEO of Chetwood Bank, said: “A hold today is the cautious choice, but leadership means more than playing it safe. The MPC’s decision will be welcomed by some, but it’s another example of cautious drift over clear direction. Holding their ground may make sense given chaotic global pressures, but it’s not the decisive leadership our economy needs.
“The economy has been through the ringer, with the Chancellor’s plan providing domestic pressures to add to those caused by the US, Russia, and beyond. However, the central bank continues to act as though inflation is the only variable that matters.
“The MPC’s lack of action piles on greater uncertainty for mortgages as well, leaving would-be buyers in the lurch. This cautious approach could lead to greater paralysis when what markets need is a catalyst. For savers, the risk is time – it’s vital to find to best returns, to stay flexible, and to stop letting handwringing on Threadneedle Street dictate their outcome.”
Alpa Bhakta, CEO of Butterfield Mortgages Limited, said: “Investors will certainly have hoped for a rate cut today, but persistent inflation and other economic indicators have made the Bank of England’s job increasingly complex. As such, a rate hold had become increasingly likely in recent weeks. It has been a common theme of the past two years, with the base rate falling at a slower-than-expected pace.
“Even if UK inflation runs above the 2% target, there remains a real possibility that we’ll see the base fall later this year – the question is how many cuts, and when will they come. For now, the lending sector must respond to today’s decision by doubling down on support for both brokers and investors.”
Paresh Raja, CEO of Market Financial Solutions, said: “When it cut the base rate in early May, the MPC strongly indicated that further cuts would follow. But economic and political landscape, both in the UK and globally, continues to evolve at pace – pronounced turbulence and uncertainty made a hold today almost inevitable.
“But we should see the bigger picture: the base rate is 0.75% lower than it was ten months ago, and a gradual decrease is still expected in the coming year. The challenge right now is to ensure inertia doesn’t set in within the property market while would-be buyers wait for further cuts; we have to unlock buyer demand right now.
“Lenders cannot afford to dwell on decisions from Threadneedle Street, and should focus on what they can control. With the prospect of multiple rate cuts in the second half of this year now fading, it’s vital that lenders continue to adapt their products and offerings in line with borrowers’ needs. If they can do that, investors should have the confidence to execute their plans, helping to unlock activity across the market despite the higher-rate environment.”
Hamish Martin, Partner at LAVA Advisory Partners, said: “Today’s decision to hold the base rate at 4.25% reflects the MPC’s cautious stance in the face of sticky inflation, geopolitical tension, and oil price uncertainty. While holding might protect credibility, it leaves businesses and dealmakers facing another potentially tough quarter. High rates and sluggish growth continue to weigh on debt-heavy M&A, though there’s still opportunity in sectors highlighted for investment in the spending review. The bigger question now is whether monetary policy can afford to stay this reactive when the wider economy needs clearer direction.”
James Burgess, Head of Commercial and Insolvency expert at Atradius UK, says:
“While the decision to hold rates at 4.25% was widely expected, given above-target inflation at 3.4% and high wage growth, it creates a challenging environment for UK companies. High borrowing costs and lingering tariff uncertainty continue to hamper investment and growth, particularly for SMEs. Businesses are still navigating elevated operating costs and cautious consumer spending.
“To navigate the uncertainty ahead, businesses should take proactive steps to protect their operations. Strengthening cash flow, reviewing supply chain resilience, and considering trade credit insurance can provide greater stability and peace of mind during what remains a challenging period.”
Felix Feather, Economist, at Aberdeen said;
“As expected, the Bank of England kept its policy rate on hold at 4.25% today.
But the vote on the MPC was marginally closer than expected, with three members voting for a cut.
The slightly more dovish than expected vote split doesn’t change our view that the Bank of England is most likely to stick to a quarterly pace of cuts going forward in line with its “gradual and careful” guidance.
But it does suggest the MPC is somewhat sensitive to weaker labour market data, and serves as a reminder of the downside risks to our rate call.
Meanwhile, further escalation of the conflict in the Middle East could push up on UK inflation, which could see the Bank move more cautiously.”
Nicholas Hyett, Investment Manager at Wealth Club said:
“The Bank of England’s goal over the last two years has been to slowly bring down inflation without crashing the economy – achieving a so-called soft landing, that’s not easy at the best of times let alone when the economic data is unreliable.
Official data suggests the Bank has so far done a pretty good job, with the UK labour market holding up well. The problem is that data has never been more unreliable, and elsewhere there are signs of strain. Just this morning recruiter Hays said that it is experiencing significant weakness, with a 13% revenue fall in UK & Ireland as hiring for permanent positions softens.
Inflation numbers too are subject to uncertainty, and had to be restated last month after an error in the data. Conflict in the Middle East risks higher energy prices potentially pushing inflation higher – though calling the course of events there is almost certainly a mugs game, and the Bank has said that under current conditions it expects inflation to remain broadly at current levels for the rest of the year.
The risk is that all the uncertainty leaves the Bank paralysed, with rates stuck at their current level. With uncertain data, policy setters will need a really compelling reason to hike or cut interest rates and that could result in default driven decisions.”
Commenting on a hold in interest rates providing some reassurances, Daniel Austin, CEO and co-founder at ASK Partners, said: “Today’s decision to hold interest rates, following unchanged inflation data, offers some reassurance after recent market volatility. However, with global uncertainty, driven by trade tensions and domestic tax shifts, still casting a shadow, the question now is how long the Bank of England can maintain this pause.
“For homeowners and buyers, the hope of lower borrowing costs remains alive. But persistently high fixed mortgage rates continue to delay meaningful relief. While house prices have largely flatlined since the end of the stamp duty holiday, any Trump-related volatility that pushes down swap rates could improve affordability and rekindle momentum.
“Investors and developers are watching closely. Demand remains strong in resilient sectors like co-living and build-to-rent, where supply-demand imbalances keep capital flowing. A clear, downward path for rates would help unlock further activity – but with uncertainty still high, staying agile is essential.”
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