As expected, The Bank of England has held interest rates at 4.5 per cent, indicating that US trade tariffs and retaliation from the EU in particular, have led to uncertainty.
But there is room for optimism with governor Andrew Bailey hinting the Bank still believed rates were on what he called “a gradually declining path” and many economists predicting two more rate cuts by the end of the year.
Mr Bailey reiterated it was the Bank’s job “to make sure that inflation stays low and stable”. Inflation, which measures the rate at which prices rise, currently remains above the Bank’s 2% target, at 3%.
The Bank’s Monetary Policy Committee voted by eight to one in favour of holding them, something David Bharier, Head of Research at the British Chambers of Commerce described as a decision that highlights “the tightrope the Bank is walking”.
He added: “Our research shows business sentiment has fallen in recent months. This has been caused by domestic policy announcements, notably the NICs increase, as well as uncertainties about a looming global trade war.
“Inflation could remain elevated for longer. To manage cost pressures, firms are increasingly looking to increase their own prices or hold back on investment. Labour costs, driven by NICs and NLW increases, are cited by businesses as the top source of pressure.
“The cost of borrowing weighs heavily on businesses every day. In this period of extreme uncertainty, lower borrowing costs will be crucial to boosting investment and growth.”
Peter Stimson, Head of Product at MPowered Mortgages, said: “This was always going to be a ‘steady as she goes’ decision and the fact the Bank’s rate-setters voted so overwhelmingly to leave the base rate alone shows the strength of their conviction that it’s too soon to cut rates again.
“Inflation came back with a bang in January, jumping from 2.5% to 3%, well over the Bank’s 2% target. With more inflationary pressure coming down the track in April, in the form of a jump in both the minimum wage and the National Insurance contributions employers have to pay, the Bank is concerned about inflation taking off again.
“However, the inflationary threat could be short-lived, and the mortgage markets are still working on the assumption that as soon as it cools, the Bank will restart its base rate cuts in order to stimulate the UK’s stagnant economy.
“The Bank predicts that GDP will grow by a meagre 0.75% in 2025, and with the giant threat of US tariffs still looming, the swap markets’ prediction of two further base rate cuts this year may be undercooking things. The chance of three rate cuts – taking the base rate below 4% by the end of the year – is in our view looking increasingly likely.
“For now the waiting game continues, and mortgage interest rates are unlikely to budge in coming days. But after a quiet start to the year, many lenders are itching to lend and there’s likely to be a surge in aggressive rate-cutting in coming months as they fight for market share.”
Scott Douglas, Senior Director, Head of Debt Advisory at international corporate finance firm Centrus said: “Key factors pushing this decision include rising inflation, currently at 3% and well above the 2% target, and private sector wage growth which stands at 6.2% – showing little sign of slowing. Adding to this heightened geopolitical uncertainty.
“On the other hand, January’s GDP contraction raises concerns about potential economic slow down, the BoE is expected to stick to its gradual and measured approach. Meanwhile, some market analysts believe there is still room for another rate cut in May.”
Ryan Etchells, Chief Commercial Officer at specialist property lender Together, said the decision was “disappointing but expected”, given that the Bank has employed a wait-and-see strategy by holding rates, rather than providing a much-needed boost to UK borrowers, investors, developers and SMEs.
“This week, the OECD downgraded its growth forecasts for the year from 1.7 per cent to 1.4 per cent as inflationary pressures, and global trade war threats persist, so some caution from the Bank on the decision to hold rates is understandable.
“However, borrowing costs will remain high, which will do nothing to kick start the sluggish UK economy and support the very businesses that will provide the momentum nor stimulate the housing market previously identified as a key priority for the Government.
Douglas Grant, Group CEO of Manx Financial Group, said “stubbornly high” and sticky UK interest rates, coupled with sluggish economic growth, offer little comfort to SMEs.
He added: “With the economy teetering on the edge of recession, persistent cost pressures, driven by high input prices and geopolitical disruptions like trade tariffs, continue to squeeze margins and dampen consumer confidence. This sustained investment hesitancy, now stretching to a quarter of the year, highlights the urgent need for innovative financial strategies to bridge the funding gap.
“UK businesses must rethink their financial frameworks to strengthen stability and resilience. Access to external funding remains a hurdle for around 10% of SMEs, reinforcing the need for a more inclusive, resilient lending landscape.
“As SMEs power growth, employment and innovation, the Labour Government must prioritise creating a stable, supportive financing environment. Yet, while its ambition for growth is clear, we’ve seen little progress in translating this into legislation that improves funding access. Both traditional and alternative lenders will play a critical role, without adequate financing, recovery risks stalling under the weight of rising taxes, geopolitical uncertainty, and the ongoing cost-of-living crisis.”
To Paul Noble, CEO of Chetwood Bank, it was a decision, in his words, unlikely to surprise: “While many had hoped for a consecutive cut, today’s announcement reinforces the view that rate reductions will be a gradual process throughout the next year or so rather than an immediate shift.
“With the Chancellor’s Spring Statement on the horizon and inflation still unpredictable, the economic outlook remains uncertain. A stabilised base rate means no immediate relief, but for savers, it extends the window to secure competitive rates before any future cuts materialise. Acting now to lock in strong returns could make a meaningful difference in the months ahead.”
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