Bank of England prepared to hold Bank Rate at 4.25%. This decision is the culmination of changes already adopted over the last several years. This move marks a challenging period for the central bank as it continues to battle inflationary pressures while trying to maintain robust economic growth.
Housing Minister’s Announcement The expected announcement, which is to come this Thursday, comes at a time where the UK’s economic prospects continue to shift significantly.
Starting as early as January 2020, interest rates were already quite low at just 0.75%. The start of the Covid-19 pandemic required an immediate response from the Bank of England. By March 2020, they reversed course quickly, lowering interest rates to an historic low of just 0.1%. That unprecedented high rate was maintained until the end of 2021. The bank’s objective was to insulate the economy from the effects of the health crisis.
While the economy was going through recovery, interest rates slowly but surely made their way back up, topping out at 5.25% in August 2023. In light of recalcitrant inflationary pressures, the Federal Reserve did what a central bank should do. They started the process with a series of cuts, lowering the rate to 5% by August 2024, then further cuts to 4.75% in November 2024 and then to 4.5% in February 2025. Their last reduction to 4.25% was on May 8, 2025.
As of today, the average rate for a two-year fixed mortgage is 5.12%. The five-year fixed mortgage rate is only slightly lower at 5.10%. Significantly, well over four in five retail customers have chosen fixed-rate contracts, which offer certainty amid today’s volatile economy. For approximately 600,000 homeowners, their mortgages are directly linked to the Bank of England’s base rate. This is why any reductions in interest rates will automatically lead to lower monthly repayments for them from day one.
Even with these modifications, inflation has continued to be persistently high at 3.4% in the month of May, the worst level registered in over a year. Economists explain this persistence with a combination of continued wage growth and inflationary pressures due to new government spending.
Economic uncertainty is escalating, exacerbated by emerging geopolitical conflicts in the Middle East. As a result, a majority of analysts expect the Bank of England to hold rates flat this Thursday and look for only one more cut this year.
“We forecast inflation to remain above 3% for the remainder of the year amidst persistent wage growth and the inflationary effects from higher government spending.”
In light of the ongoing economic uncertainty, particularly due to geopolitical tensions in the Middle East, many analysts predict that the Bank of England will hold rates steady this Thursday and may only implement one more rate cut throughout the year.
“Additionally, the current tensions in the Middle East are causing greater economic uncertainty. We therefore expect the Bank of England to keep rates on hold this Thursday and implement just one further cut this year.” – Monica George Michail