As had been widely anticipated by market analysts, the Bank of England has opted to keep UK interest rates on hold following the latest meeting of the Monetary Policy Committee (MPC). The decision comes just a day after inflation data revealed that the Consumer Prices Index (CPI) rose by 3.4% over the past year—still significantly above the Bank’s 2% target.
With concerns lingering about persistent inflationary pressures in the coming months, today’s announcement carries important implications for financial advisers, their clients, and the wider markets.
Here’s how industry experts have reacted to the Bank’s latest interest rate decision:
Laith Khalaf, head of investment analysis at AJ Bell, comments: “Against a backdrop of armed conflict, tariffs, and inflationary pressures, it’s little wonder the Bank of England is holding fire on interest rate cuts. The spike in the oil price stemming from the conflict in the Middle East increases inflationary risks, if it’s sustained. Meanwhile the 9 July tariff deadline is also coming up fast, which might well herald a fresh set of economic circumstances. The market is still expecting two rate cuts by the end of this year, but given the swirling vortex of uncertainty currently engulfing world affairs, it’s best not to count your chickens until they’re hatched.
“Although the Bank has decided to take no action right now, this will be seen as a dovish hold by the market because three members of the rate committee voted to cut base rate to 4%. The doves on the committee point to a loosening labour market in the UK and risks to global growth as reasons why a rate cut might be in order. The remainder of the committee remains more circumspect, but it will now only take two of them to peel off in favour of a rate cut to push one through. All eyes will now turn to the next meeting in August as a possible stage for a cut to base rate.
“Mortgage rates have continued to decline of late, but that’s almost certainly a result of previous interest rate falls feeding through and competitive pressure in the mortgage market. The latest decision from the Bank of England doesn’t hugely alter the interest rate outlook, and so the effect on mortgage rates is likely to be muted. At the margins we may see some more rate cuts trickling through. Of greater import are the current conflict in the Middle East and further developments in US trade policy around the 9 July tariff deadline, which could well shift economic forecasts and have a significant impact on the UK mortgage market, for better or worse.
“Meanwhile cash rates have been declining, with the average easy access account now paying 2.7%, according to Moneyfacts. That’s below the current rate of inflation, and while this is a backward-looking metric, the Bank now expects CPI to remain at present levels for the rest of this year. After a sugar rush of high cash rates, savers might now be looking at their returns with some measure of disappointment. It remains to be seen whether lower rates will tempt savers to move out of cash and into riskier assets in search of better long-term returns. For many people cash is the only port of call they consider as a home for their savings, and they accept taking a ‘like it or lump it’ attitude to the returns they receive.”
Jonny Black, Chief Client Experience Officer at Aberdeen Adviser, said:
“Today’s decision to hold interest rates is in line with market expectations. An increase in inflation is one of the key drivers of the decision and it’s expected interest rates will stay higher for longer.
Even though nothing has changed, consumers need to reassess their financial plans – whether that’s revisiting the balance of cash or non-cash assets held, checking current strategies still support financial goals amid economic and market volatility, or speaking to a financial adviser who can help make sure their money is working as hard as it possibly can.”
Lindsay James, investment strategist at Quilter:
“Events of recent weeks means all hopes of the Bank of England moving faster to cut interest rates have been extinguished. As such, it comes as very little surprise that the Monetary Policy Committee has chosen to hold rates at 4.25%. Although we had three votes for a cut, ultimately inflation continues to drive decision making, and with the headline figure remaining elevated earlier this week, there is very little movement just now for the committee, and that is before global events are factored in.
“We are still awaiting the full impact of Donald Trump’s tariffs to show up in the prices of goods. We are approaching the end of the 90-day pause on reciprocal tariffs, and what happens from there is really anyone’s guess. Even with the US-UK trade deal, the raft of tariffs on other nations would likely be felt in some form here too. In particular, Europe looks the least likely to cave to Donald Trump, and given it is the UK’s biggest trading partner, there will be knock-on effects.
“The bigger short-term impact will come from the rising tensions in the Middle East. Hope of any de-escalation looks slim, particularly given the ‘will he, won’t he?’ type comments from the President on US involvement in the last few days. This war will have a significant impact on global energy prices given Iran’s role in oil production. Iranian oil now represents a not insignificant 8% of global production, so any targeting by Israel or the US is going to have a real impact on global oil prices. With Iran also not looking like it will surrender at all, it leaves the possibility open that it could do something drastic and cripple global shipping lanes in the Strait of Hormuz. If this were to be shut off to commercial ships, it will cause another inflationary shock.
“It is such a difficult picture to navigate for the Bank of England, and as such it will act more cautiously, despite a desire from the market for rate cuts. Despite strong growth in the first quarter of the year, the expectation is the UK economy will stagnate again in the second half, making the need for rate cuts more prominent. But with risks on the global stage not only uncertain but also substantial, the mantra of rates being ‘higher for longer’ will continue.”
Commenting on the interest announcement from the Bank of England, William Marshall, Chief Investment Officer, HRIS – Hymans Robertson Investment Services, says:
“Today’s hold is no surprise. It’s consistent with the MPC’s stance of gradually cutting rates, i.e. cutting every other meeting, which leaves most investors now looking to August for the next cut. However, given what’s happening with oil prices, as a result of the conflict in the Middle East, August’s meeting may not be such a fully drawn conclusion. If the elevated oil price is sustained or even exacerbated this will raise inflation. Under normal circumstances, central bankers may look-through this kind of external shock, but the BoE will be concerned around any impact on inflation expectations and wage demands if CPI starts to approach 4%.
“As there wasn’t much uncertainty over the interest rate decision, there has been little reaction from the gilt market to today’s announcement. Despite the BoE already cutting 4 times since last August, gilt yields have remained stubbornly high, partially driven by global bond markets demand/supply dynamics. We expect this to continue to drive gilt yields over the next few months, but the attractive valuations could be a good entry point for long-term investors.”
Claire Jones, Head of Strategic Partnerships at Flagstone comments:
“This will be good news for savers. But this will likely be only a short-term delay to the inevitable. Since the base rate started to fall last August, MPC base rate decisions have flip-flopped between reduce and hold. The general trend for rates is still a downwards one.
“In this sort of environment, it pays to fix. Putting a significant proportion of your spare cash into one or more fixed term accounts is an effective way to shield your money against falling rates.
“There are even great rates available on 1, 2 and 3-month fixed terms, so it’s a savings strategy that suits even those savers who need to maintain reasonable access to their cash.
“The proportion of savings going into instant access accounts remains high, however. This indicates a lack of appetite or interest among savers in fixing rates for the best possible returns over the longer term. Savers are still chasing rates for immediate gain. There’s still a lot to do for the savings market as a whole to help savers fix now, enjoy the benefits later.”
Marcus Jennings, Fixed Income Strategist, Global Unconstrained Fixed Income, Schroders:
“Market expectations were low for this Bank of England meeting and in the event, it proved to be one of the less volatile moments for the gilt market. The Bank has recently reiterated a gradual approach to rate cuts and the macro developments since the last meeting have broadly played into this view.
“Unsurprisingly then, the tone of today’s meeting was largely unchanged compared to previous guidance, even if the vote split skewed slightly dovish relative to consensus. With a nod to more slack in the labour market, it should give the Bank more confidence to continue easing at a gradual pace later this year.”
Ed Hutchings, Head of Rates at Aviva Investors, commented on today’s BoE decision:
“As expected, the BoE left rates on hold with investors left largely expecting two further 0.25% cuts for the rest of the year and one further cut in 2026, thereby leaving the terminal rate at c. 3.50%. With the BoE navigating persistent services inflation, rising oil prices, and weakening economic data, it’s a tricky balancing act as to where the end-terminal rate may well be, as such a cautious approach is being taken. However, with more information to be gained over the coming months and with the employment market most likely to loosen further, the BoE may well be more biased to deliver one or two more cuts vs expectations. Over time, this should see both gilt yields and the value of the pound move marginally lower against their relative peers, such as Europe. Overall, an uncertain environment clearly remains in play right now.”
Andrew Gething, managing director of MorganAsh, said:
“While today’s decision is far from a surprise, it demonstrates just how quickly the conversation has changed around the future path of interest rates. After last month’s cut, the view was there was much more to come. The consensus is still downward, but bold predictions of as many as three more cuts this year now seem pie in the sky. As is often the case, fierce inflation has caused traders to scale back their predictions, proving that plotting the future path of interest rates can still be a fool’s errand.
“All in all, it makes it incredibly difficult for households to confidently look ahead – especially those which have seen disposable incomes decrease – and are experiencing sustained financial pressures on all fronts. With the implications this can have on health, well-being and living standards, there’s no doubt a high proportion of these customers will be considered vulnerable. We must focus on the here and now, rather than promises of the future – and make sure we are properly supporting all clients – particularly those who are in difficulty.
“Not only is this is complex, we know from the FCA that many firms are still not equipped to do this properly. As interest rates remain elevated, it’s a reminder that firms need to know who these customers are – and be alive to the challenges and outcomes they are facing. This requires good tech, robust data and proper processes.”
Tom Stevenson, Investment Director, Fidelity International comments on the latest Bank of England rate decision:
“The Bank of England, which held interest rates at 4.25% today, is being pulled in opposite directions. On the one hand, the UK economy contracted sharply in April, wage growth has slowed, unemployment is creeping up, and business confidence is faltering. There is an argument to lower borrowing costs, therefore, to kick-start growth.
“On the other hand, UK inflation remained high in May at 3.4% – well above the Bank’s target of 2%. The rising price of food, furniture and household goods was partly to blame, and the conflict in the Middle East could complicate things further. Tensions have caused oil prices to surge, and this could eventually translate into higher household energy bills.
“Services inflation, a key measure for the Bank of England, slowed to 4.7% in May, but remained higher than many would like.
“The UK is also treading a careful path between the United States and Europe. The European Central Bank is already nearing the end of its rate-cutting cycle, having lowered borrowing costs to just 2% earlier this month. In contrast, the Federal Reserve is cautious. Yesterday it held rates in the 4.25%-4.5% range for the fourth time.
“These competing forces are taking their toll on the Monetary Policy Committee, which has become more divided in its thinking. Small, staggered rate cuts are in vogue for now – but we are only halfway through an eventful year.”
Simeon Willis, Chief Investment Officer at XPS Group said:
Following the release of the inflation figures yesterday, the market was pricing in a likelihood of staying at 4.25% at around 9 in 10 so this decision comes as no surprise.
It’s difficult for interest rates to fall when inflation is so much above the 2% target. In addition, we will need to wait 3 months before we have some higher inflation months from 2024 dropping out of the 12 month calculation.
Geopolitical risks are also in play, with concerns that conflict in the Middle East could push oil prices higher. That said, despite recent increases, oil is still comfortably within its trading range of the past few years.
The Bank is walking a tightrope. April’s GDP data showed a 0.3% monthly contraction, so there’s a clear need to support growth, even if that remains secondary to the core goal of controlling inflation.
For pension schemes, the backdrop remains relatively favourable: longer-term yields are still elevated, while inflation expectations have eased, offering something of a best-of-both-worlds scenario.
Brad Holland, director of investment strategy at J.P. Morgan owned digital wealth manager, Nutmeg, said:
“It was always going to be an uphill battle for the Bank of England to justify a back-to-back rate cut following last month’s decision to bring down rates. 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.
“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%. But, we could be a long way away from this target with the market currently expecting the base rate to fall to 3.5% by April 2026. Getting services inflation down to a more manageable level is crucial to lowering interest rates.
“Many expect the next rate cut to take place in the early autumn when trends in services prices will be clearer, and the impact of the international situation will be better understood. Arguably, the Bank of England is playing for time.”
George Lagarias, Chief Economist at Forvis Mazars said: “Will a “best guess” be enough? While the central bank opted to keep rates steady, three members of the committee, including one internal, suggested that a rate cut would be more appropriate. This likely means that the Bank is gearing up for another rate cut around the summer or by October at the latest. But much like the Fed acknowledged, the outlook is murky. It is a very tricky decision, as risks on both sides of inflation are elevated.
The economy could slow down substantially, making the present interest rate constrictive. Conversely inflation could rise as energy prices rebounded and various other components (food, retail, restaurants) move upwards, making the present rate too accommodative. No one, including the BoE will know until after the fact.”
James Tothill, investment specialist at Wesleyan, said:
“The Bank of England is clearly still taking a ‘wait and see’ approach.
“The outlook is still uncertain, but the market is already starting to predict that another cut is on the cards when the MPC meets again in August. A drop in rates might strengthen some clients’ appetite for increasing equity investments. But advisers might also find that some clients are more nervous around the market given recent volatility.
“Firms will need to be prepared to manage this nervousness to ensure clients continue to find suitable solutions that benefit their long-term plans. This might include increasing proactive communications about current volatility drivers or using specialist tools like on-platform smoothed funds.”
Alexandra Loydon, Group Advice Director at St. James’s Place, comments:
“The Bank of England’s decision today to hold interest rates at 4.25% comes as no surprise, especially in light of ongoing geopolitical tensions and yesterday’s news that inflation remains stubbornly high at 3.4%. While today’s news is no shock, this doesn’t make it any less concerning for consumers who continue to face rising financial pressures, with it once again an indication that the path to lower rates will be by no means straightforward.”
Chris Helyar, Partner in LCP’s investment team, commented:
“The decision to hold rates at 4.25% reflects the MPC’s cautious stance amidst lingering inflationary pressures and persistent political uncertainty. CPI eased to 3.4% in May but remains well above the 2% target. Rising household costs have contributed to elevated inflation in recent months, while increased tensions in the Middle East have driven up global oil prices, adding further inflationary pressure.”
“Disappointing economic growth figures, rising unemployment along with slowing wage growth had provided the MPC with arguments for a further cut, but weren’t enough to tip the balance that way. Today’s decision underscores a wait-and-see narrative in what is a very uncertain economic and geopolitical environment.”
