Interest rates – live: Bank of England holds rate amid oil and inflation concerns

The Bank of England (BoE) announced on Thursday its decision to hold the Bank Rate — what we might simply call the interest rate — at 4.25 per cent, following a cut to that level in May.

The Bank’s nine-person Monetary Policy Committee (MPC) voted by a majority of six-three to maintain rates at that level, with the dissenters voting for another quarter-point cut down to 4.0 per cent.

The committee underlined “the risks of inflation persistence” and “global uncertainty”, sticking to their mantra that a “gradual and careful approach” to cutting rates remained appropriate.

Here’s a brief rundown of what the current interest rate might mean for you:

Mortgage holders hoping for a big drop later this year shouldn’t hold their breath, barring some very different economic data coming through over the next few months.

The rates you see on mortgage products are based on swap rates – expectations of where the interest rates go – rather than the exact bank rate, and most banks have already taken that into account, says Frances Haque, chief economist at Santander UK.

“As expected, base rate has been held. Despite that, we have seen many lenders cutting mortgage lending rates in the last week – Santander included. Our forecasts suggest that we’re still likely to see two more base rate cuts over the coming year – most likely ending 2025 at 3.75 per cent.

“This is being ‘priced in’ to current mortgage rates.

“Aspiring homeowners and those already on the ladder could expect to see mortgage rates continue to hover between the top end of the threes or lower end of the fours. For this to change significantly we’d need to see changes in economic data – and as ever, that could see mortgage rates go up as well as down.”

Expectations until recently have been of a hold today and a cut in August.

Not necessarily, says Thomas Pugh, chief economist at tax and audit firm RSM UK.

“The most interesting part of today’s decision was the vote split with three members voting for a 25bp cut rather than the two we expected,” he said.

“The committee kept its “gradual and careful” language, again suggesting it is in no rush to cut rates more quickly than previously assumed.

“The big risk now is rising energy prices. At current levels, oil prices probably won’t require a change in thinking. But if they go to $85 or higher, inflation will probably breach the psychologically important level of 4%.

“Normally, we would expect the BoE to ‘look through’ energy driven inflation movements, but inflation expectations are close to record highs and are at risk of becoming unanchored. This makes the chances of the BoE responding by skipping a rate cut significantly higher than it previously would have been.”

Trade union Unite have spoken out against the decision to hold interest rates, saying it is punishing workers and enabling banks.

General secretary Sharon Graham said:

“The Bank of England’s decision is wrong. High interest rates are a weight on the backs of workers. They boost lenders’ profits, while pushing up mortgages and rents, and increase the strain on our struggling industries.”

Other than oil and energy prices which is outside the UK’s hands to a large extent, reducing domestic inflation is key to lowering interest rates – and therefore to stimulating the economy.

Brad Holland, director of investment strategy at wealth manager, Nutmeg, pointed out a key area facing high inflation which needs to be tamed.

“Services inflation and wage growth continue to run hot, and external factors such as tariffs and global conflict have created too many ‘unknowns’. The Bank is showing caution,” Mr Holland said.

“For now, the question weighing on many people’s minds is: how long will it take for interest rates to fall further? It is believed by many that the ‘neutral rate’, where the UK economy can deliver price stability, lies around 3 per cent.

“But, we could be a long way away from this target with the market currently expecting the base rate to fall to 3.5 per cent by April 2026.

“Getting services inflation down to a more manageable level is crucial to lowering interest rates.”

As for mortgage holders and what they do next, it depends on when their fixed term deal expires – and maybe just as importantly, when it started, says Alice Haine, personal finance analyst at Bestinvest.

“Future rate cuts could certainly deliver respite for some mortgage borrowers. Anyone nearing the end of their fixed-rate term now has a tricky decision to make,” said Ms Haine.

“Should they secure another fixed-rate deal or take a punt on further interest rate cuts, which could mean a tracker might work out best over the longer term? With the gap between the average two-year fix and the average five-year fix narrowing to the lowest level since the inversion began in October 2022, choosing how long to lock in for is another decision that might require some careful thought.

“Mortgage rates have been edging down, but they remain higher than five years ago before the Bank of England began hiking interest rates and when rates were at ultra-low levels.

“First-time buyers may find the mortgage market more welcoming thanks to recent BoE rate cuts and an uptick in lenders relaxing their affordability stress test rules.

“For existing borrowers rolling off cheap, five and 10-year fixed-rate deals secured before the BoE began hiking rates, the financial hit from higher mortgage costs will hurt as they are likely to see a sizeable jump in their repayments.

“This is where a reputable independent mortgage broker can be worth their weight in gold, helping to source the right solution for a borrower’s unique needs.”

The Bank of England has confirmed its MPC members voted by a majority of 6–3 to maintain Bank Rate at 4.25 per cent.

Three members preferred to reduce the base rate by 0.25 percentage points, to 4 per cent, it said.

The BoE has referenced “substantial disinflation over the past two years” but also pointed out the current level is likely to remain elevated for the rest of the year.

Wider economic uncertainty, including energy price rises, mean the intention remains to stay on the “gradual and careful” approach to cutting interest rates.

Mortgage owners in particular might already be looking ahead and wondering when the next date is for a potential interest rates cut.

In that case, look no further: 7 August is the date for your diary.

“Cautious” movement forward, is the message, amid a decision to stay with today’s 4.25 per cent rate.

John Dentry, of the Current Account Switch Service (CASS) said expectations remain that cuts will follow later this year – but reminded savers to check their individual products to ensure their own bank haven’t cut rates and they are still getting the best value for their money.

Make sure to see if others may suit you, if your own bank isn’t giving a great rate right now.

“Today’s base rate decision tells the market that the Bank is moving forward cautiously amid a turbulent economic environment. It’s predicted that this approach will continue with a few minor rate cuts later this year,” He Dentry said.

“Consumers must remember that it is not the base rate which dictates your interest rates, but your bank. The banks usually won’t align their rate drops with the Bank of England, so even though the base rate hasn’t changed, your own, personal rate could potentially do so.

“If you’re finding yourself earning less interest on your cash, remember there are plenty of other providers who might give you a deal that is a better fit for your financial priorities. Switching banks is an important way to put the power back in your own hands – make sure you consider using it.”