The Bank of England has kept interest rates on hold at 4% and signalled a slower pace of bond sales warning that the UK economy remains vulnerable to inflationary pressures.
The Monetary Policy Committee voted 7–2 to maintain the base rate, in line with market expectations. The central bank also announced it would scale back the pace of quantitative tightening, reducing the planned disposal of government bonds to £70 billion from £100 billion.
Governor Andrew Bailey said the economy was “not out of the woods yet”, pointing to subdued growth, flatlining GDP in July and unemployment at a four-year high.
The Bank highlighted ongoing geopolitical risks, including global conflicts and new US trade tariffs, as further headwinds.
Inflation is forecast to remain at 4% in September, driven by rising food costs and higher employment expenses linked to Chancellor Rachel Reeves’ £25 billion national insurance increase for businesses set out in October’s Budget.
Markets had widely expected rates to be left unchanged following five consecutive cuts since last August. Investors now anticipate borrowing costs will remain at 4% for the rest of the year, with policy direction hinging on Reeves’ tax and spending plans due in November.
INFLATION CONCERNS
Colin Bell, COO at Perenna said: “The Bank of England’s decision to maintain the interest rate at 4% reflects persistent concerns about UK inflation, which remains above target with consumer prices rising yet again.
“It makes any likelihood of mortgage rates dropping this side of Christmas extremely slim, with thousands of borrowers facing a sharp reset in repayments as they remortgage, potentially adding hundreds of pounds to monthly outgoings.”
HARSH REALITY
And he added: “This will be a harsh reality for households already stretched by higher living costs. The ripple effect could be profound – affordability could worsen despite measures recently introduced to improve stress testing and hopeful first-time buyers are priced out or forced to delay purchases, creating a subdued market cycle that in turn reduces transactional activity.
“We have to move away from short-termism if we are ever going to shield the market from such uncertainty.”
RISK EXPOSURE
Rob Clifford, chief executive of Stonebridge, said: “The spectre of 2022, when prices spiralled, still looms large for the Monetary Policy Committee – and it is clear it is determined not to repeat exposure to that risk, even though some regard it as remote.
“That means it could be some time before we see borrowing costs fall again. Markets now put the odds of a cut this year at just one in three, with the next quarter-point reduction not expected until spring 2026.”
He added: “For advisers, today’s decision is another prompt to not only engage early with customers coming up to refinance but to reengage with those who may have opted to wait – after all, only 61% of eligible borrowers who could refinance in H1 did. They will all need clear guidance to weigh the different products on offer and secure the deal that best fits their circumstances.”
MISSED OPPORTUNITY
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “There was a very slim chance that the Bank of England would cut interest rates this month but ongoing concerns over inflation, which remains steady at 3.8 per cent, meant caution prevailed.
“With inflation expected to rise to over 4% at the next reading, double the Bank’s 2%, the chance of a cut at the next meeting in November is also looking less likely, especially as only two members of the Committee voted for a quarter-point cut this time around.
“With speculation surrounding what property taxes might be introduced in the November budget resulting in discretionary buyers and sellers taking a ‘wait and see’ approach, a rate cut would have been a shot in the arm for the housing market.
“Now that the stamp duty concession has ended, and with affordability concerns persisting despite five rate reductions in the past year, further rate reductions are necessary to boost not only the housing market but the wider economy.”
ALL ABOUT THE BUDGET
Richard Pike, chief marketing and sales officer at Phoebus, added: “While inflation was not quite as high as some anticipated yesterday, it remains above target and continues to weigh on households and businesses.
“Against that backdrop, it’s little surprise the Bank has held its line and the market has largely priced in today’s decision.
“The bigger question now is whether we will see another cut before the end of the year.
“That prospect will rest heavily on the signals coming out of November’s Budget, which could determine how quickly confidence returns to both households and industry.”
