The Bank of England has decided to keep interest rates unchanged at 4%, a move that many borrowers and mortgage holders had hoped would go the other way. The decision signals a more cautious approach from policymakers as inflation continues to prove more difficult to bring under control.
Governor Andrew Bailey explained that while rates remain at 4%, future cuts will need to be handled with care. “We’re not out of the woods yet,” he said, emphasising that any adjustments must be “gradual and careful” to avoid reigniting inflationary pressures.
The Monetary Policy Committee (MPC) was divided in its decision, with seven members voting to hold rates and two calling for a cut to 3.75%. The split highlights ongoing debate within the Bank over how to balance inflation risks with a sluggish economy.
This latest decision follows August’s rate cut, the first in over two years, which lowered borrowing costs from 4.25% to 4%. However, stubborn inflation figures released this week suggest further easing is unlikely for now.
The Office for National Statistics reported that inflation held steady at 3.8% in August, almost double the Bank’s 2% target. With price rises showing little sign of easing, analysts say the BoE has little choice but to wait before considering more reductions.
Economists from S&P Global, Pantheon Macroeconomics, and other financial institutions have suggested that no further cuts are likely this year. Some forecasts even indicate the next adjustment may not come until April 2026 at the earliest.
Money markets reflect this caution. Traders have largely priced out the possibility of a near-term cut, with only a slim chance of a reduction by the end of 2025. Deutsche Bank, however, has left open the possibility of a December cut, though it admits inflation remains a key concern.
Experts point to persistently high services and wage inflation as major obstacles. Even though headline inflation is not climbing, underlying pressures are keeping price growth elevated. This has made the MPC hesitant to move too quickly.
For households, the Bank’s decision is a mixed outcome. Savers may benefit from higher rates remaining in place for longer, but borrowers, particularly mortgage holders, continue to face high repayment costs. Mortgage rates have dipped slightly since August, yet hopes for more relief appear paused.
The decision also complicates the government’s position ahead of November’s autumn budget. Chancellor Rachel Reeves must find a balance between supporting economic growth and repairing the public finances, a challenge made harder by high borrowing costs.
Some analysts believe that if inflation rises again later this year, the Bank might have to hold rates even longer, or possibly consider another increase. This uncertainty is adding pressure to both households and businesses already struggling with costs.
Economists also note that international central banks are taking different approaches. The US Federal Reserve has recently trimmed rates, while the European Central Bank kept its rate steady. In Norway, policymakers opted for a small cut, citing progress in cooling inflation.
In contrast, the UK’s path looks slower and more cautious. The BoE has also announced it will reduce the pace of its quantitative tightening programme, cutting its government bond holdings by £70bn over the next year, bringing the total down to £488bn.
Financial experts warn that this period of “higher for longer” rates could weigh on the property market, business investment, and consumer spending. At the same time, some argue stability may give the economy room to adjust before cuts resume.
For now, the message from the Bank of England is clear: inflation remains the priority. Until there is convincing evidence that price growth is firmly heading back towards the 2% target, borrowers may need to prepare for a prolonged period of elevated rates.
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