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The Bank of England announced that it is deciding to hold the base interest rate at 4.25%. This comes after a split vote, with 6 members of the Monetary Policy Committee supporting keeping it unchanged, while three preferred a small cut to 4%.

The committee is still pushing for a 2% inflation target. Inflation went up to 3.4% in May, mainly because of earlier increases in energy prices and some regulated costs. That figure was in line with what the Bank expected.

Although inflation has slowed compared to previous years, members agreed it was too early to make any big changes. Global tensions and higher energy costs are still in the mix. The Bank said it would keep an eye on how inflation behaves before making any further decisions.

What Does This Mean For Households?

According to Victor Trokoudes, CEO of smart money app Plum, this decision means savers can expect interest rates on many accounts to stay where they are. He mentioned that a cut would likely have lowered savings returns, so the current rate is good news for those putting money aside.

For mortgage holders, it鈥檚 a bit more complicated. People on tracker or standard variable rates might have been hoping for smaller monthly payments, but that hasn鈥檛 happened. However, some fixed-rate mortgage deals are still available at competitive prices, partly because markets expect rates to drop later in the year.

The link between borrowing using credit cards or getting loans, and the base rate isn鈥檛 always direct. But since there鈥檚 been no change, most people won鈥檛 see much movement in those rates for now.

And What About The Economy?

 
Victor Trokoudes also gave an economic analysis on the news. He shared, 鈥淭oday鈥檚 hold was widely predicted, especially given the heightened geopolitical uncertainty and the Bank of England鈥檚 emphasis on a 鈥済radual and careful approach鈥� to further easing. While last month鈥檚 base rate cut of 25bps was also not surprising, the fact that it was such a narrow decision was.

鈥淚t would be no surprise if some of the Monetary Policy Committee are now wondering if they should have gone further with a bigger cut in May given the negative economic news since. GDP fell in April by 0.3%, more than predicted by economists while the UK鈥檚 once-robust employment figures are showing cracks. Wages have risen in real terms, and perhaps are still at a level that still provides some cause for concern for the Committee, but the pace of wage growth is now softening.

鈥淭wo MPC members voted for a 50bps cut at the May meeting, which shows how seriously the risk of a full-fledged recession is being taken. In fact, the UK currently appears especially out of kilter with its biggest trading partner of the Eurozone, where the deposit rate has already been cut to 2%.

鈥淣ow the narrative for rate reductions in the near-term is far more difficult.. As well as the outbreak of war between Israel and Iran which is already feeding through to higher oil prices combined with the impact of the US tariffs, the latest inflation print of 3.4% is well above the BoE鈥檚 target of 2%. While the inflation rise was expected, that in itself doesn鈥檛 mitigate the effects of rising prices on people鈥檚 day-to-day finances.

鈥淭he markets are still predicting at least two further rate reductions this year arriving in either August or September and then November, in keeping with the quarterly sequence of previous rate reductions.

鈥淚t may well be that this quarterly cadence has come about through coincidence rather than being deliberately planned by the BoE given the volatility in the UK鈥檚 growth trends, and their deliberations won鈥檛 have been helped by doubts over the quality of key economic indicators. Given this backdrop, many will be hoping for a clearer sense of direction from the central bank moving forward.鈥�