The Bank of England has held interest rates at 3.75%.
The Monetary Policy Committee said further cuts this year are now ‘likely’ as inflation falls back towards its 2% target.
Matthew Allen, Lecturer in Economics at the University of Salford, said:
Since August 2024, interest rates have been cut six times, reflecting the Bank of England’s earlier confidence that inflation was easing. However, the recent rise in inflation has clearly made policymakers more cautious, and a decision to hold rates signals that price pressures have not fully disappeared.
Those expecting further relief may be disappointed, particularly households still grappling with cost-of-living pressures and businesses already feeling the effects of recent tax rises, including higher employer costs. For many firms, this combination is squeezing margins and limiting their ability to invest or pass on savings to consumers.
The rise in inflation is being driven by a mix of factors. Energy and food prices remain volatile, wage growth is still relatively strong as firms compete for workers, and global supply chains continue to face disruption due to geopolitical tensions and trade frictions. At the same time, higher taxes and regulatory costs for businesses are feeding through into prices, as firms attempt to absorb or pass on these additional expenses.”
With many of these pressures coming from outside the UK economy, and outside the Bank’s direct control, the Bank of England is walking a fine line. Cutting rates too quickly risks reigniting inflation, while holding them for longer prolongs the strain on households and businesses.
The big question now isn’t when rates fall, but whether inflation genuinely cools without pushing the economy into prolonged stagnation.
