The Bank of England has opted to keep interest rates on hold at 4.25% yesterday, with the monetary policy committee (MPC) voting by a majority of 6–3 to maintain its cautious stance.
The decision reflects the MPC’s balancing act between encouraging signs of disinflation and persistent uncertainties in the domestic and global economy.
Three members of the committee, including deputy governor Dave Ramsden, backed a 0.25 percentage point cut, citing further loosening in the labour market, subdued wage growth and the risk of policy remaining too restrictive.
However, the majority judged that the current rate remained appropriate, emphasising the need to continue squeezing out residual inflationary pressures.
INFLATION CONNCERNS
Annual CPI inflation rose to 3.4% in May, up from 2.6% in March, in line with the Bank’s May forecast. The rise was largely attributed to earlier increases in regulated and energy prices. Despite the uptick, inflation is expected to hover around current levels through the remainder of the year before falling back toward the 2% target in 2026.
The Bank noted that economic growth remained weak, with GDP growth likely to slow in the second quarter and business sentiment subdued. Labour market indicators, including vacancies and payrolled employees, pointed to an emerging margin of slack. Wage growth, while still elevated, has moderated further, with private sector regular earnings easing to 5.1%.
Global risks also weighed on the committee’s deliberations, with rising energy prices driven by geopolitical tensions in the Middle East and continuing trade policy uncertainty following US tariff changes.
The MPC reiterated that monetary policy is not on a pre-set path. While acknowledging progress in curbing inflation, it signalled that a restrictive stance may be necessary for some time yet to ensure inflation returns sustainably to its target. The committee’s next rate decision is due in August.
INDUSTRY REACTION
Jeremy Leaf, north London estate agent and a former RICS Residential Chairman, says: “With inflation and wage growth stubbornly high while concerns about the economy here and abroad remain, the Bank of England clearly found it unsafe to reduce base rate.
“The inevitability of the no change decision will have a limited impact on an already fairly subdued housing market as it has already been largely factored in by buyers and sellers.
“However, relaxed lender stress testing is improving affordability and having a positive knock-on effect on activity, particularly for first-time buyers.”
NOT UNEXPECTED
John Phillips, Chief Executive of Spicerhaart and Just Mortgages, says: “The decision to hold interest rates is not unexpected and is certainly in line with the bank’s careful and gradual approach.
“Yesterday’s news on inflation wouldn’t have been enough to sway them, especially with current geopolitical tensions and in light of further escalation in the Middle East and the potential ramifications this could have on prices and global trade.
“While the changing narrative around interest rate expectations and the number of cuts isn’t entirely helpful and goes some way to unsettle borrowers, we can take comfort that the consensus is still that interest rates will be cut.
“While careful and gradual is fine to a point – especially given the bigger picture at play – an economy on life support requires some clear action and hopefully that will mean more than one cut later in the year. It will improve affordability, drive homeownership and deliver economic growth.
“In the meantime, the message to potential borrowers is that right now, lenders are willing to lend, options are available to support all buyers and brokers stand ready to help them navigate the market.
“We’ve been encouraged by demand across both EA and financial services businesses, but know there are still plenty with the appetite to buy, but just need that extra support.”
SIGNS OF CAUTION
Iain McKenzie, CEO of The Guild of Property Professionals, says: “The Bank of England’s decision to hold the base rate at 4.25% is a clear signal of caution in the face of conflicting economic data.
“While the move may disappoint some borrowers hoping for further relief, it is a pragmatic response to the difficult balancing act of nurturing economic growth while reining in inflation.
“With May’s inflation figures coming in higher than expected at 3.4%, the Monetary Policy Committee has understandably opted for a ‘wait and see’ approach. GDP growth in Q1 of 0.7% has likely given the Bank confidence that the economy can withstand current rates, allowing it to prioritise the fight against inflation without risking a slowdown.
“For the housing market, this decision provides stability rather than a new stimulus. The benefits of the May rate cut are still filtering through, with recent sub-4% mortgage headlines helping boost market activity to a four-year high for agreed sales.
“This ongoing momentum, coupled with lenders relaxing affordability criteria, means the market is well-placed to continue its resilient performance.
“While a further cut would have been welcome, the hold ensures the market remains on a steady footing.
“The balance between buyer demand and a healthy increase in housing supply will continue to support transaction levels while keeping price growth in check. All eyes will now be on the next set of inflation data to signal the Bank’s future direction.”
BALANCING ACT
Jonathan Handford, MD of Fine & Country, says: “The Bank of England’s decision to hold the base rate at 4.25% comes against a backdrop of persistent inflationary pressures, making the balancing act between price stability and economic growth more challenging.
“While inflation remains above expectations, the housing market has shown remarkable resilience – buoyed by the May rate cut, improving mortgage affordability, and lender adjustments to borrowing criteria.
“Activity remains steady, with May seeing a four-year high in sales agreed. With supply also up 13% year-on-year, buyers are benefitting from greater choice, while house prices growth is being kept in check. Holding rates steady should help sustain market momentum without adding further inflationary risk.”
RATE REDUCTIONS WILL BE CRUCIAL
Jason Tebb, President of OnTheMarket, saysL “As expected, the Bank of England held interest rates at 4.25 per cent. With inflation falling only slightly to 3.4 per cent in May, still some way above the 2 per cent target, caution prevailed for the rate setters this time around.
“Rate reductions are hugely welcomed by buyers and sellers, boosting confidence, easing affordability and giving impetus to the housing market, resulting in improved activity and transaction levels.
“Now that the stamp duty concession has ended, further rate reductions will be even more crucial, giving the market added momentum as the year progresses.”
WAITING GAME
Matt Smith, Rightmove’s mortgages expert, says: “Home-movers will have to wait a little longer for a third Bank Rate cut of the year, but today’s hold was widely anticipated. Despite the global uncertainty and turbulent events that we’ve had so far this year, the mortgage market has remained fairly stable.
“We’re broadly where the markets expected us to be at the start of the year in terms of inflation and rate cuts.
“Lenders have a bit of room to reduce rates further even with a hold in the Bank Rate today so home-movers can still be hopeful of some small mortgage rate cuts over the next couple of weeks.
“Average rates have been pretty flat in recent weeks, but we have seen increasing signs of competition amongst lenders as they have reduced their stress-testing criteria and with new mortgage products coming back to market, lenders are looking at ways to support more people get the home that they want.”
PLENTY OF POSITIVES
Kevin Roberts, Managing Director of L&G’s Mortgage Services business, says: “I don’t think too many people will be surprised at the base rate holding at 4.25%, but there’s still plenty of positives in the market.
“We’re seeing more sub-4% deals on offer, along with some innovative products, with higher LTVs and low, or no deposits.
“As we move into the peak summer season, now’s a good time to consult with a professional mortgage adviser to make the most of what the current market has to offer.”
CAUTION OVER REACTION
Sharon Beedham, Relationship Director at ONP Solicitors, says: “With inflation flat and geopolitical noise fuelling rate-cut rumours, it’s telling that the Bank chose caution over reaction.
“That speaks to how fragile the economic balance remains – but it also underlines that the recovery is on firmer ground.
“In the current climate, a steady hand from the Bank of England offers more value than a rushed rate cut.
“What’s especially encouraging is the spike in first-time buyer activity despite the end of stamp duty incentives.
“That shows that real demand is still there – not just stimulus-driven. For many, consistency is more empowering than volatility. A held rate, while not headline-grabbing, gives movers a window to act with more certainty and less fear of shifting sands beneath them.”
GEOPOLITICAL TURMOIL
Joe Pepper, UK Chief Executive Office at PEXA, says: “There will be no raised eyebrows by the Bank of England’s decision to keep the base rate at 4.25%.
“Inflation staying at 3.4% and defying expectations of a slight drop, combined with geopolitical turmoil and higher than anticipated labour costs will have undoubtedly led the monetary committee to remain cautious in their approach.
“The implications for the mortgage market, however, will still be disappointing for borrowers and particularly the 1.8 million fixed-rate holders due to remortgage this year.
“Those hoping for more favourable mortgage rates are once again confronted with uncertainty and exposure to fluctuating inflationary pressures. When rates eventually fall – and they will – there will be a scramble from borrowers to secure better deals.
“Conveyancers are already stretched, and a sudden surge in transactions could overwhelm the system.
“Now is the time to ensure we have the right infrastructure and technology in place to deal with this demand and ensure positive outcomes for all in the remortgage process.”
MOUNTING RISKS
Rob Clifford, Stonebridge Chief Executive, says: “By holding rates today, the Bank of England is exercising caution amid mounting risks – particularly as renewed Middle East tensions threaten to push energy prices, and therefore inflation, sharply higher once again.
“This decision sends a clear message that the Bank remains firmly focused on reining in inflation despite signs of a weakening UK economy. But we see this pause as temporary.
“Though inflation risks are rising, the Bank appears confident the recent uptick is temporary and will ease in the months ahead.
“For that reason, we continue to expect two rate cuts this year – likely in August and November – potentially pushing the base rate below 4% for the first time since early 2023.
“Borrowers may have to wait a little longer to see if this translates into lower mortgage rates, although we think that outcome is very likely.
“With the outlook shifting daily, brokers need to be proactive in contacting their customers. The market is confusing, and many borrowers will be seeking clarity and reassurance. Expert advice will be vital in helping them make informed decisions in confidence.”
