The Bank of England has held interest rates at their current level of 4.25 per cent, as was widely predicted.
The Bank’s Monetary Policy Committee (MPC) voted 6-3 in favour of holding the bank rate where it is, after previously cutting from 4.5 per cent in May.
Economists had widely expected the Bank to keep the base rate as it tries to balance high inflation, geopolitical tensions and a slowing economy.
It comes a day after inflation was announced as remaining at 3.4 per cent in May.
The Bank tends to up the bank rate – or base rate – to try to dampen price rises, and drops it when inflation is returning to its target but has to also consider the wider economy and labour market.
The Bank of England expects inflation to rise later this year.
Alice Haine, personal finance analyst at Bestinvest, the online investment platform, believes there a number of factors that will influence the rate.
“While businesses come to terms with higher labour costs that may drive some of that inflationary pressure, Donald Trump’s tariffs along with escalating tensions in the Middle East are further causes for concern on the economic outlook.”
Paul Dales of Capital Economics expects the figure to be between 3 and 3.5 per cent for the rest of the year.
Meanwhile, Raj Badiani, of S&P Global Market Intelligence, said he expects a rise rise to 3.7 per cent in June.
Robert Wood, chief UK economist at Pantheon Macroeconomics, said: “Events in the Middle East driving up oil prices last week are a reminder of just how close to the wind the MPC is sailing.
“Oil and natural gas price gains last Friday, if sustained, would add 6 basis points to our average CPI inflation forecast between May 2025 and April 2026. The peak would nudge up to 3.7 per cent in September, from 3.6 per cent.”
Will interest rates be cut again this year?
It is widely expected that there will be at least one more interest rate cut this year, if not two.
Those on variable-rate mortgages will not see a change to their repayments as a result of the hold.
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Around four in five mortgage holders are on fixed-rate mortgages, where the interest rate is locked for a set period of time, which means that if you are on this type of loan, your repayments will also not change.
Instead, you will notice a change when your mortgage comes up for renewal.
Nick Mendes of John Charcol brokers said: “Whether the Bank had held interest rates steady or opted for a small cut, the outlook for mortgage holders in 2025 remains finely balanced.
“Inflation is easing, the labour market is cooling, and growth has slowed, but uncertainty around global risks and sticky services inflation means the rate path is still anything but settled.
“Even in a falling rate environment, borrowers would be wise not to wait passively. If your current fixed deal is due to end this year, it’s worth reviewing your options early, as some lenders allow new deals to be secured up to six months in advance.”
The average rate on a two-year fixed mortgage is 5.11 per cent while, for a five-year fix it stands at 5.1 per cent, according to Moneyfacts.
How will the interest rate hold affect renters?
Renters are not immediately affected. Some landlords may decide to increase rents by smaller amounts if their mortgage increases whilst others will be fixed or own their property outright.
Rents are set by a variety of factors, including supply and demand, and so the hold is likely to have a minimal effect.
What will happen to savings rates?
Easy access savings rates can change at any point although they tend to move depending on interest rate rises and falls.
However if you have a fixed-rate account, the interest rate is set for the period of time the account is fixed for, so it will be unaffected by the news from the Bank of England.
If you are locking in a new account, it may be worth doing so sooner rather than later, as you can still obtain rates that easily beat inflation.
The best easy access savings rate on the market at the moment is Trading212’s cash ISA with a rate of 4.86 per cent.
The best one year fixed rate is with Cynergy Bank with a rate of 4.5 per cent.
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