The Bank of England (BoE) has held interest rates at 4.25%, a decision widely expected by markets and analysts.
Moneyfarm chief investment officer Richard Flax said: “With inflation still at 3.4%, well above the Bank’s 2% target, the Monetary Policy Committee is maintaining a cautious stance.
“This move highlights the delicate balance the Committee is trying to strike between persistent inflationary pressures and signs of a slowing economy.”
While headline inflation has eased slightly, Flax noted that “core and services inflation remain stubborn”.
He also pointed to wider geopolitical risks, particularly the Israel-Iran conflict, which has pushed oil prices higher and raised concerns about renewed inflation.
Deutsche Bank estimates that a 10% rise in oil prices could add up to 0.3 percentage points to CPI inflation — “a notable risk in an already fragile environment”, Flax added.
Stonebridge chief executive Rob Clifford echoed the sentiment, saying: “This decision sends a clear message that the Bank remains firmly focused on reining in inflation despite signs of a weakening UK economy.”
However, Clifford still expects two rate cuts this year, most likely in August and November, which he said could “potentially push the base rate below 4% for the first time since early 2023”.
For borrowers, the rate hold offers little relief. LV= chief investment officer Adam Ruddle described the decision as “a bitter pill to swallow” for mortgage holders
Citing the firm’s Wealth and Wellbeing research, Ruddle said: “More than two in five (41%) mortgage holders are worrying about the rising prices of day-to-day household items, and a quarter are specifically concerned about the impact of rates on their mortgage repayments.”
Other macroeconomic factors are also weighing on the BoE’s decision-making.
Myron Jobson, senior personal finance analyst at interactive investor, said the central bank appears to be taking a ‘wait-and-see’ approach in light of potential US trade policy shifts.
“Trump’s so-called ‘liberation day’ tariffs are adding uncertainty,” he said. “The Bank is waiting for greater clarity, with an 8 July deadline for concluding trade talks before higher US tariffs take effect. How severe those tariffs may ultimately be is anyone’s guess.”
Despite the BoE’s move, markets remained largely unmoved.
William Marshall, chief investment officer at Hymans Robertson Investment Services, said: “There has been little reaction from the gilt market to today’s announcement.”
He noted that while the BoE has already cut rates four times since last August, gilt yields remain elevated—driven in part by global demand and supply dynamics in bond markets.
“We expect these forces to continue influencing gilt yields, but current valuations could offer a good entry point for long-term investors,” he added.
The Bank last cut interest rates by 0.25% in May, bringing the rate down to its current level of 4.25%.
