The Bank of England has left interest rates unchanged at 3.75%, as policymakers continue to tread a careful line between sticky inflation and a weakening economic backdrop.
With inflation holding at 2.8% and signs of a softer economy emerging, the decision was widely expected. For advisers, however, the bigger question is what comes next. While inflation remains above target and energy costs could keep price pressures elevated in the months ahead, many commentators believe the debate is now shifting away from further rate rises and towards the timing of the next cut. Against that backdrop, advisers are continuing to help clients navigate a delicate balance between inflation, interest rates and long-term financial planning.
We bring you the views of some of the leading voices in the profession:
Nick Henshaw, Head of Intermediaries Distribution at Wesleyan, said:
“Today’s widely expected interest rate hold reflects both the global context of continued uncertainty, despite this week’s signals of potentially easing geopolitical tensions and the parallel domestic position. Although we have seen recent reductions in inflation and mortgage rates, those reductions have been modest, and inflation is still substantially above the Bank of England’s 2.0% target.
“A rate hold might help to stabilise investor confidence in the short term, but cash savings in particular can be vulnerable in times of high inflation. Advisers should encourage clients to think beyond immediate returns and, instead of being reactive to these kinds of market shifts, help them take a longer-term view of their portfolio planning.”
Luke Bartholomew, Deputy Chief Economist, at Aberdeen said;
“The Bank of England was widely expected to keep rates on hold today, so no surprises in the decision. The two votes for a hike show there are some policymakers still concerned about underlying inflation pressures. But with the recent fall in energy prices and the softer inflation data yesterday, events are evolving in line with, or potentially even better, than the Bank’s scenario A from the last meeting, which was consistent with keeping rates on hold this year. And this is likely what is influencing most members of the Monetary Policy Committee. Certainly, inflation has higher to move yet after the upcoming increase in the energy price cap. But the conditions don’t seem in place for sustained inflationary pressure. So we think the BoE will be able to avoid the kind of monetary tightening that the European Central Bank has already started to deliver and that the Fed hinted at last night. In fact, if energy prices continue to moderate then the debate could once again turn again to rate cuts, but that might have to wait until next year.”
Lindsay James, investment strategist at Quilter:
“As was well telegraphed, the Bank of England has kept interest rates at 3.75%, with markets more concerned about whether hikes are still likely this year or if the narrative can shift back to cuts. Clearly the memorandum of understanding between the US and Iran has changed the landscape somewhat, but the benefits of this and a return to normality still seem a long way off.
“Whilst inflation was below expectations in May and currently under 3%, it is still likely to jump closer to 4% later in the year due to the coming impact a higher energy price cap. Furthermore, despite recent falls in the oil price, it remains higher than it was last year and the Bank of England will feel nervous about cutting rates in that scenario even with a stuttering labour market and uninspired growth. Furthermore, members acknowledged that a weaker labour market reduced the chances of the recent bout of inflation leading to higher wage demands, some felt that households are more aware than ever of how one has led to the other in recent years – a case of once burnt, twice shy.
“Like the Federal Reserve, therefore, they will probably be inclined to sit on the fence for a while yet and wait for further data as to how the Middle East situation resolves itself. You also have the added complication of political instability hitting the UK at the same time, with Andy Burnham expected to win the Makerfield byelection. Should we see Burnham win and a leadership contest that results in a lurch to the left, the growth hurdles facing the UK may become increasingly harder to clear and thus make the BoE’s job even more difficult than it already is today.”
Charlie Ambler, Co-Chief Investment Officer and Partner at wealth management firm Saltus, said:
“The Bank’s decision to hold rates at 3.75% reflects the difficult balancing act being faced. The MPC faces a genuine dilemma, with inflation remaining elevated and second-round effects from energy shocks becoming a real concern. The combination justifies the hawkish language and dissent for a hike that emerged in April. Yet growth is weakening, unemployment is drifting higher, and the labour market is softening, so today’s decision to hold reflects the right balance at this point in time, given this uncertainty.
“But monetary policy decisions must also account for wider economic sentiment. The longer the Bank keeps rates restrictive in a weakening growth environment, the more pressure builds across business investment and job creation. Markets are beginning to price in the possibility of further policy tightening later this year, possibly as soon as July, and that expectation sits uneasily with the reality of subdued activity and cooling wage growth. If May’s inflation data continues to show the expected moderation, and if labour market weakness persists, the case for the Bank to recalibrate toward a more balanced stance over the summer becomes harder to ignore.
“The message for savers and homeowners is one of continued uncertainty. Those on fixed rate mortgages taken out in recent years have locked in protection against further rises, but the prospect of sustained higher rates through 2026 means the savings environment will remain challenging for those dependent on deposit returns. Households should focus on the fundamentals rather than trying to second guess the Bank’s next move.”
Rob Morgan, Chief Investment Analyst at Charles Stanley Direct, part of Raymond James Wealth Management, comments:
“The Middle East peace deal could see a welcome tamping of the inflation hump hitting UK households this year, meaning policymakers at the Bank of England can breathe a tentative sigh of relief.
“It’s increasingly likely that the bar to raising UK interest rates this year isn’t scaled. In the context of a lacklustre economy and weak demand, rates are already restrictive and borrowing costs have already escalated as rate cuts have been removed from the table – conditions that are doing some of the BoE’s inflation-controlling work for it.
“Raising rates at this juncture could cause economic harm and have little impact anyway on higher costs emanating from an energy price spike. All but the most hawkish members of the rate-setting committee are inclined to sit on their hands for a while longer to see how things pan out – and keep one eye firmly on the stagnant economic picture.
“At the same time, the door to interest rate cuts remains firmly shut as the inflationary wave from the Iran war passes through. Having fallen back, energy prices may now remain somewhat elevated compared to pre-crisis levels as depleted emergency reserves are rebuilt and production recovers. Combined with the delayed reaction on other major components of the inflation basket such as energy bills and food, it means price rises are set to stay high over the course of the year before falling back.
“After the shocks of Covid and the Ukraine war, central bankers remain sensitive to anything that risks embedding another round of inflation. With households bracing themselves for pricier shopping baskets and energy bills in the coming months, worries of second-round effects from higher pay demands are not extinguished.
“Yet the opening of the Strait of Hormuz is undoubtedly good news for consumers, business owners, and central banks alike. It means that the price jolt won’t be as ferocious as it might have been, and it could give way to a calmer inflationary setting next year. Overall, it looks like a holding pattern for rates before the bank can look to complete what’s left of its rate cutting cycle in 2027 as the sluggish growth environment continues to take its toll on demand.”
Mike Ambery, Retirement Savings Director at Standard Life plc said:
“With yesterday’s inflation data coming in lower than expected at 2.8%, and the recent de-escalation in US-Iran tensions also easing oil price pressures, it’s not surprising to see the Bank of England take a pause and hold rates 3.75%. For now, this suggests rates may be close to their peak, even if the path from here remains uncertain.
“Markets are currently expecting one more rate rise this year, but that could change if oil prices remain under control and inflation eases. Even so, with inflation still above the Bank’s 2% target, policymakers are likely to want clearer evidence that price pressures are stabilising before considering any cuts. For many households still feeling the impact of higher bills and mortgage costs, this period of uncertainty continues to make financial planning more difficult.
“For borrowers, today’s hold may offer some reassurance given recent speculation around a possible hike, but the reality is borrowing costs are still staying higher for longer. Around 1.8 million fixed-rate mortgages are due to come to an end this year, with roughly one million of those coming off low-interest deals taken out before rates began rising in 2022*. For many, that means a significant jump in monthly repayments, so anyone approaching the end of a deal should plan ahead and explore their options early.
“For savers, rates staying higher for longer can support returns on cash, but inflation means headline rates do not tell the full story. Cash has an important role for short-term needs and emergency savings, but for those saving for the longer term, investing through vehicles such as pensions and ISAs may offer greater potential for real returns over time, allowing savings to benefit from compound investment growth and tax relief.”
Adam Ruddle, LV= Chief Investment Officer, said:
“The Bank’s decision to hold interest rates at 3.75% comes as little surprise, yet it leaves us halfway through the year with no change to rates since the end of 2025.
“Despite the likely conclusion of the Iran conflict, it will take time for global economies to recover from the impact of the near-total closure of the Strait of Hormuz. Strain on the Strait has affected energy supplies and driven up costs across fuel, food, healthcare and manufacturing, creating knock-on pressures that are now feeding through into inflation.
“This is increasingly being reflected in households across the country. LV’s latest research* shows that in the last three months over 27 million people reported an increase in their energy bills, while 26 million consumers also experienced higher fuel costs. For many, financial pressures are unlikely to ease any time soon.
“With inflation currently at 2.8% and expected to rise further into the winter months, there are concerns it could reach 4% – double the Bank’s target. As a result, the Bank faces a delicate balancing act.
“By holding rates at the current level, the Bank appears to be taking a measured approach, aiming to bring inflation under control without undermining growth. The question now is whether holding steady will be enough as price pressures continue to build.”
Jeremy Batstone-Carr, European Strategist Raymond James Wealth Management ,says:
“The Bank of England’s Monetary Policy Committee (MPC) voted to keep the UK base rate unchanged at 3.75% at the conclusion of its policy meeting today. A peace deal between the United States and Iran, if it survives, removes a significant risk to future inflation and while rate-setters will not wish to take anything for granted, evidence suggests inflationary pressures are sufficiently contained at present to avoid having to take interest rates into even more restrictive territory.
“The MPC has made clear that it watches inflation expectations closely and, in that regard, a recent YouGov survey confirming that longer-term expectations have dipped from elevated levels in March will provide considerable relief. Furthermore, labour market data now points to a sustained softening in employment conditions, an important prerequisite for wage pressures to remain subdued.
“The extent to which the decision to hold rates unchanged was unanimous will have been watched closely. The 7-2 split, and accompanying statement, provide valuable insight into the extent to which the Committee’s view has been swayed by the recent developments in the Middle East and the likely evolution of economic activity and inflation pressure in the future.
“Undoubtedly, the Bank will wish to remain guarded, without pre-committing to any explicit forward guidance. However, it is likely that senior officials will tolerate above-target inflation now on the basis that it is deemed likely to be temporary and that prevailing price pressures will slowly ease as the remainder of the year plays out.”
Isabel Albarran, Investment Officer at Trinity Bridge says:
“The MPC voted today to leave Bank Rate unchanged, in line with expectations, though two members favoured a hike, echoing the hawkish tilt we saw in the US last night. While domestic activity has arguably been stronger than anticipated, May’s inflation print suggests that pass-through from higher energy prices has been less pronounced than expected. Coupled with the recent agreement between the US and Iran and a shift lower in energy prices, this alleviates some of the pressure to hike rates.
“This is all welcome news for bond holders globally, but the gilt market may continue to come under pressure for reasons closer to home, as attention shifts from the Strait of Hormuz to Makerfield. By tomorrow, we will know if Keir Starmer faces an imminent leadership challenge, should Andy Burnham succeed in winning a seat in Parliament and taking a step closer to No 10.
“If Burnham can beat challengers from Reform, odds of a more expansionary fiscal policy rise, with some combination of increased borrowing and higher taxation likely. This has partly been priced into bond markets but concern that UK fiscal policy will take a dangerous and unsustainable path lingers. While this remains a risk, the reality of confronting the bond market is likely to regulate Burnham’s policy ambitions.”
Michael Browne, Global Investment Strategist, Franklin Templeton Institute, reaction:
“In the current environment, where positive and negative data points are broadly balanced, it is understandable that the MPC has chosen to sit on their hands and hold rates steady. Inflation is likely to rise into July following the next domestic energy price cap reset, as the effects of the Iran will not yet be evident by then. The real test comes in September: will there be evidence of second-round effects? Will the autumn wage round – across public and private sector – prove sufficiently restrained to keep longer-term inflationary risk in check? By autumn, the data should provide clearer answers, and the MPC’s decision to hold may well be vindicated. Until then, both the MPC and the markets will be left to wait and watch.”
Esther Watt, Bond Strategist at Evelyn Partners, the UK wealth manager, commented:
“As widely anticipated, the Bank of England’s (BoE) Monetary Policy Committee (MPC) kept its Bank Rate steady at 3.75% with the vote split 7-2. Chief Economist Huw Pill and external member Megan Greene were in the hawkish camp voting for a 25-basis point (bp) hike.
“In the six weeks since the last MPC meeting, data came in mixed as the economy showed tentative signs of improving growth with first quarter GDP print coming in at 1.1% (0.8% surveyed and 1.0% prior), albeit mostly covering the period before the Iran War started. Meanwhile, the oil price spiked towards $120 and second round effects began to work their way through the system. Arguably the already weak labour market (unemployment at 4.9% and private earnings growth slowing to 2.9% in April) and better-than-expected price data (CPI holding at 2.8% versus 3.0% surveyed for May) already mitigate this somewhat with tight monetary conditions buying the committee time to assess the situation before responding.
“Following this week’s peace deal in which both the US and Iran have announced victory, oil is now trading back down with Brent futures ~$78.5. This puts the outlook for the economy ahead of the Bank’s most constructive Scenario A (defined in April’s Monetary Policy Report) which saw Bank Rate ~4.0-4.5% by the end of the year.
“The Bank held it’s guidance that the Committee will continue to closely monitor the situation in the Middle East and how its impact propagates through the economy.
“With gilt markets having recovered to price one 25 basis point hike taking the Base Rate to 4.0% in September, this is a significant improvement relative to the three 25bp hikes priced before year end for the last meeting.”
James Lynch, Investment Manager at Aegon Asset Management, comments:
”As expected the BoE kept rates unchanged at 3.75% with a vote of 7-2. The 2 for higher rates was as expected by Huw Pill and Megan Greene.
”The MPC have written a paragraph each to set out their own views. Governor Andrew Bailey who voted for unchanged rates notes that the recent inflation outturn gives him greater confidence that underlying disinflation has continued. Also Labour market data shows some further softening, and there are further signs of demand weakness.
”On the other side of the argument, Huw Pill thinks second round effects from the latest oil shock are still to come through and requires a monetary tightening.
”The market has initially taken this meeting in its stride without much change as the language and the vote is pretty much as expected. The majority of the committee seem happy to sit on their hands at this juncture and might well feel with recent energy price developments as oil now in the $70’s and inflation numbers undershooting expectations recently that they are justified to do so.”
Janet Mui, head of market analysis at wealth manager RBC Brewin Dolphin said:
“The Bank of England’s decision to keep rates on hold reflects a view that while inflation remains above target, the risk of a renewed inflation shock has diminished. Governor Andrew Bailey has repeatedly stressed that the key concern is whether higher energy prices trigger second-round effects through wages and broader pricing behaviour.
Most recently, oil prices have fallen and the Hormuz is expected to reopen following a US/Iran agreement. At the same time, a softer labour market and slower private-sector wage growth should make it harder for higher energy costs to become embedded in the economy.
The MPC remains data dependent, but today’s decision suggests policymakers see the current level of rates as sufficiently restrictive while they assess how inflation and labour market dynamics evolve.”
Scott Gardner, investment strategist at J.P. Morgan Personal Investing said:
“The Bank of England has pressed pause on interest rates once more, deciding that there is no immediate need to hike rates as the feared inflation spike hasn’t shown up yet. Policymakers have left rates unchanged for a fourth consecutive meeting as higher energy costs have yet to meaningfully feed through into UK inflation figures.
“The Bank of England has been in an unenviable position since the US-Iran conflict broke out as it has had to weigh up whether any inflation spike will be lasting or temporary. So far, this approach has been proven right as inflation has yet to spike or change substantially with businesses absorbing most costs. The framework peace deal between the US and Iran could also be helpful on the domestic front if the Strait of Hormuz opens up soon and goods can flow once again. While this is all positive news for now, the upcoming increase in household energy prices from July is likely to impact future inflation readings and provide a headwind to the economy. The hope will be that any inflationary rise is softened by other energy dynamics such as petrol prices falling.
“To date, the main question for the Bank of England has been: hold rates now but hike when? Markets are pricing in a December hike, implying many expect elevated energy prices will eventually filter through into higher UK inflation figures over the coming months. For now, the committee will remain in ‘wait and see’ mode assessing whether any inflation spike is here to stay.”
Emma Hollingworth, Chief Distribution Officer at LSL Financial Services, says:
“Today’s decision to hold rates tells us the Bank of England is nervous about the state of the economy and the labour market. While first quarter growth was stronger-than-expected, contraction in April shows that the situation in the Middle East is starting to take its toll.
“A ceasefire, if it holds, is exactly what the Bank would have wanted. Energy prices have been the biggest source of inflation risk and a de-escalation would remove pressure that’s been complicating the policy outlook. Our default view is that rates stay where they are for the foreseeable future, but that assumption rests entirely on the ceasefire holding.
“While the Bank has chosen to hold rates today, brokers should still proactively reach out to clients approaching the end of their fixed deal. Today’s decision and yesterday’s inflation reading suggests that mortgage rates will likely stay where they are for the time being, but the situation in the Middle East remains fragile and could shift quickly. So, the message is simple: secure a rate while you can.”
Richard Flax, Chief Investment Officer at Moneyfarm, comments:
“The inflation indicators have been running hot in recent months, largely driven by the direct impact of the war in Iran on energy markets. However, with a ceasefire now in place and momentum building towards a more stable outlook, combined with May inflation coming in below expectations at 2.8%, there are early signs that price pressures may begin to ease in the months ahead. In the near term, some upward pressure is still likely as higher costs from previous months continue to work their way through the system before moderating.
“For the Bank of England, the decision to hold rates at 3.75% reflects that more balanced backdrop. Inflation remains a factor, but there is growing confidence that it will begin to cool if current conditions hold. For now, policymakers appear comfortable waiting for greater clarity, with the path ahead likely to remain data dependent as they monitor whether these pressures prove temporary or become more embedded.”
