The Bank of England has left interest rates on hold at 4.25%.
The Bank’s Monetary Policy Committee (MPC) chaired by Bank Governor Andrew Bailey voted by 6 to 3 to leave the cost of borrowing unchanged in a blow to heavily indebted businesses and millions of mortgage borrowers.
Three members of the MPC voted to cut rates to 4%. Rates were last cut to their current level in May.
Today’s decision had been widely expected in the City, particularly after it was revealed yesterday that the rate of inflation only fell slightly to 3.4% in May.
However most analysts expect the Bank to make its next move in August with a further quarter point cut to 4% to help boost the UK’s anaemic economic growth.
That would be the fifth reduction since the Bank started easing interest rates from their peak of 5.25% in July last year.
A further reduction to 3.75% is widely expected in November
Rates were hiked rapidly by the Bank from December 2021 to August 2023 to get a grip of the rampant inflation unleashed by the ending of Covid restrictions and the energy price spike that followed the full scale Russian invasion of Ukraine.
It left millions of homeowners who took out fixed two and five mortgage deals at record low interest rates between 2017 and 2021 facing hugely higher costs when they had to remortgage. Around 1.6 million mortgage deals are set to expire this year, according to trade body UK Finance.
Suren Thiru, economics director at accounting body ICAEW , said: “Keeping interest rates unchanged is a big blow to those people wrestling with high mortgage bills and firms struggling with April’s host of major bill rises and tax hikes.
“Though this policy loosening cycle is not yet over, this latest decision is further confirmation that the speed of interest rate cuts remains especially cautious, with policymakers wary over elevated inflation and intensifying international instability.
“While just three MPC members voted to cut rates, an August policy loosening remains probable with the meeting minutes indicating continued concerns over the UK’s vulnerability to growing economic and geopolitical headwinds.
“With policymakers facing a difficult combination of deepening global turbulence, uncomfortably high inflation and rising oil prices, future interest rate decisions will be more fraught, particularly if the economy weakens further.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “With only a two-way split in voting this time around - three members voted for a quarter-point reduction while six voted for a hold - this is encouraging, suggesting that another reduction could come at the August meeting.
“However, with the Bank opting for a cautious approach, it has missed a real opportunity to be bold by cutting rates again. This would have sent out a strong message, helping boost the housing market and wider economy, particularly now that the stamp duty concession is no longer available.
Paul Noble, CEO of online lender Chetwood Bank, said: “The MPC’s lack of action piles on greater uncertainty for mortgages as well, leaving would-be buyers in the lurch.
“This cautious approach could lead to greater paralysis when what markets need is a catalyst. For savers, the risk is time – it’s vital to find to best returns, to stay flexible, and to stop letting handwringing on Threadneedle Street dictate their outcome.”
