The Bank of England has chosen to maintain interest rates at 4.25 per cent, a move reflecting its cautious approach amidst ongoing concerns over a potential resurgence in inflation.
This outcome was widely expected by financial analysts, with markets having already priced in a pause in rate changes ahead of the announcement.
Out of the nine-member Monetary Policy Committee, six voted to keep rates unchanged, while three called for a reduction to 4 per cent. This division highlights differing views on how best to support economic stability without stoking inflationary pressures.
Last month, the Bank had cut the base rate from 4.5 per cent to 4.25 per cent, marking a significant shift from the recent peak of 5.25 per cent. It remains to be seen whether this downward trend will continue in the coming months.
The next interest rate decision is scheduled for 7 August. In the meantime, policymakers will closely monitor inflation figures and overall economic performance to determine the appropriate course of action.
For many mortgage holders, the decision to hold rates may come as a disappointment. Hopes had been high for another cut, which could have offered some relief from rising monthly repayments.
On the other hand, savers may view the news more favourably. Following the rate cut in May, many savings products saw reduced returns, so a hold at 4.25 per cent may help stabilise rates for deposit accounts and ISAs.
The wider economic context continues to be uncertain, with inflation proving more persistent than anticipated. This is likely to influence the Bank’s reluctance to move too quickly with further cuts.
Borrowers are now faced with the challenge of deciding whether to lock in current mortgage rates or hold out for possible reductions later in the year.
It is worth noting that the split vote among MPC members suggests that rate cuts are still on the table, particularly if inflation shows more significant signs of easing.
As such, anyone approaching the end of a fixed-rate deal should consider speaking to a broker or adviser to understand their options in the current climate.
The Bank’s cautious stance indicates that it wants to balance supporting economic growth while ensuring inflation remains under control.
Whether further rate reductions materialise in the months ahead will depend heavily on the economic data released in the lead-up to August.
What does this mean for mortgage borrowers?
The Bank of England’s decision to keep the base rate at 4.25 per cent may feel disappointing for those with mortgages, particularly those hoping for some financial relief.
Yet, even if a cut had gone ahead, the immediate impact for most borrowers would likely have been limited. This is largely because lenders don’t base their mortgage pricing solely on the current base rate.
Instead, mortgage rates tend to reflect the longer-term outlook for interest rates. Lenders consider economic forecasts and anticipated movements, rather than responding directly to one-off rate changes.
Experts suggest that one more rate cut may happen later this year, bringing the base rate down to 4 per cent. After that, rates are expected to stabilise somewhere between 3.75 and 3.5 per cent.
David Morris, head of homes at Santander, explained that the market has already accounted for these anticipated reductions. He noted that mortgage pricing currently reflects these expectations.
As a result, we’re already seeing some of the best deals at just under 4 per cent, with a few even dipping into the high three per cent range.
According to Morris, those waiting in hope for the return of the ultra-low interest rates seen in recent years could be left disappointed.
He advised that while trying to time the market might seem tempting, the days of exceptionally cheap borrowing may not return any time soon.
For prospective homebuyers and those remortgaging, this means current deals may already offer good value given the circumstances.
Mortgage advisers continue to encourage borrowers to consider the full picture — including affordability, term length, and flexibility — rather than just chasing the lowest possible rate.
In this current climate, locking in a rate that fits your personal situation could prove to be a sensible move.
Ultimately, while rates may edge down further, the overall landscape suggests a more stable, moderate rate environment going forward.
What next for mortgage rates?
Fixed rate mortgage deals remain competitive, with the best offers still sitting just under the 4 per cent mark. Currently, the lowest available deal is a three-year fixed remortgage option from MPowered Mortgages, which comes with a rate of 3.82 per cent.
NatWest is offering the most attractive two- and five-year fixed rates, priced at 3.92 per cent and 3.95 per cent respectively. These deals are based on borrowers having a 40 per cent deposit.
For most homebuyers, interest rates are likely to fall somewhere between 4 and 5 per cent, depending on their deposit size and personal circumstances.
The future of mortgage rates will largely be shaped by how financial markets interpret the direction of interest rates. In turn, interest rate expectations are influenced not only by inflation but also by the broader state of the UK economy.
Recent figures from the Office for National Statistics showed a 0.3 per cent contraction in the economy for April 2025, compared with March. This was a sharper decline than the 0.1 per cent drop that many analysts had predicted.
As a result of this unexpected economic dip, the likelihood of a Bank of England interest rate cut in August rose significantly. Market expectations for a cut increased to 86 per cent, up from 81 per cent just days earlier—and from only 44 per cent at the start of the month.
However, persistent inflation may complicate those hopes. The latest ONS data showed inflation at 3.4 per cent in the 12 months to May, only a slight drop from April’s 3.5 per cent.
This figure remains well above the Bank of England’s target of 2 per cent, leading some to question whether further interest rate reductions are likely any time soon.
Matt Smith, a mortgage expert at Rightmove, noted that with inflation staying above 3 per cent, the Bank is likely to act cautiously.
At one point, there had been speculation of multiple rate cuts throughout the year, but with inflationary pressures easing slightly, those expectations have moderated.
Smith added that forecasts are likely to continue fluctuating due to international economic uncertainty and shifts in market sentiment.
Current market projections suggest one more rate cut may come in 2025, bringing the base rate to 4 per cent. Further reductions could bring it down to between 3.75 and 3.5 per cent in 2026.
Some financial institutions are more optimistic. HSBC and UBS both predict that rates could drop as low as 3 per cent by the end of 2026.
However, not everyone agrees. Analysts at Pantheon have taken a more cautious view, forecasting interest rates to remain higher, ending 2026 at around 4 per cent—just a slight reduction from today’s level.
What should you do with your mortgage?
For those planning to buy a property or remortgage soon, the decision between a two-year or five-year fixed mortgage deal can feel particularly tricky.
Mortgage adviser Aaron Strutt from Trinity Financial has cautioned borrowers against making decisions based on the assumption that mortgage rates will fall significantly in the near future.
He explained that more borrowers are now leaning towards two-year fixed deals, hoping that borrowing costs will become cheaper in the coming months as both the base rate and fixed mortgage rates are expected to drop.
However, Strutt warns that despite some major investment banks forecasting substantial cuts to the base rate, these predictions may not materialise as expected.
He suggests that while many are drawn to shorter-term fixes, considering a three- or five-year fixed mortgage might be a smarter move for some borrowers.
In the current economic climate, he emphasises, having the reassurance of payment stability over the longer term could be just as important as chasing a slightly lower rate.
What does this mean for savers?
The Bank of England’s base rate plays a significant role in determining how much interest savers can earn. Typically, savings rates tend to increase when the base rate is on the rise and decrease when it falls.
With the base rate now held steady at 4.25 per cent, some savers may benefit from what’s being described as a ‘stay of execution’. Kevin Brown from Scottish Friendly noted that as long as the Monetary Policy Committee delays any cuts, savers can continue to enjoy relatively strong returns.
However, not all savers are equally protected from potential rate reductions. Financial experts warn that those with easy-access cash ISAs could be the most vulnerable if savings providers start trimming their interest rates.
At present, the top easy-access ISAs listed on This is Money’s best-buy tables are offering returns of around 5.4 per cent — comfortably above the current base rate.
According to James Blower, founder of The Savings Guru, easy-access ISA rates are most at risk of cuts in the near future. He pointed out that Moneybox had already lowered its rate, and Tembo was expected to follow suit soon after.
Blower also warned that other providers, including Plum and Trading 212, may reduce their rates shortly, so savers are advised to monitor their accounts closely.
What next for savings rates?
In a climate where the base rate is expected to fall, the outlook for savings rates is largely one-directional — and that’s downward.
Although the Bank of England has currently held the base rate at 4.25 per cent, market forecasts suggest it could drop to 4 per cent or even 3.75 per cent by the end of the year. If that happens, fixed-rate bonds and ISAs are likely to be the most affected savings products.
James Blower, founder of The Savings Guru, believes the trend is already set. He commented, “I can’t see any reason for rates to do anything but fall in the second half of 2025.”
For savers willing to tie up their money, the best one-year fixed bond available at the moment pays around 4.5 per cent. However, that’s a notable drop from the peak of 6.2 per cent seen in October 2023.
Blower went on to explain that while fixed-rate bonds and ISAs may remain steady for now, they’re expected to start declining by the summer, particularly if the Bank of England reduces the base rate in August.
He added that although the current 4.5 per cent offered on one-year bonds may seem less generous compared to earlier in the year, it’s likely to represent good value in the coming weeks.
If the anticipated rate cut does happen, Blower expects top one-year fixed rates to fall to around 4.25 per cent before summer ends.
Best savings rates and how to find them
The top-paying easy-access savings accounts are currently offering around 4.75 per cent interest.
Atom Bank leads the market with an easy-access deal at 4.75 per cent. For example, someone saving £10,000 in this account could earn £475 in interest over the course of a year, provided the rate stays unchanged.
For those who can afford to set aside their money for a longer period, fixed-rate savings accounts might offer better returns.
Cynergy Bank is currently offering the most competitive one-year fixed-rate deal at 4.5 per cent. A saver who deposits £10,000 in this account will receive a guaranteed £450 in interest after one year. This account is also covered by the Financial Services Compensation Scheme (FSCS), protecting up to £85,000 per person.
For slightly longer commitments, Birmingham Bank offers a two-year bond paying 4.43 per cent, and also provides the best three-year bond with a rate of 4.47 per cent. Meanwhile, Hampshire Trust Bank is offering a five-year bond paying 4.46 per cent.
Savers may also want to consider cash ISAs, which allow interest to be earned tax-free.
CMC Invest currently provides a top-rate easy-access cash ISA for new customers, offering 5.44 per cent. This includes a 0.85 per cent bonus for the first three months, after which the rate drops to 4.59 per cent.
Another option is Trading 212, which offers a cash ISA at 4.86 per cent. This rate includes a 0.76 per cent bonus that applies for 12 months.
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