The Bank of England has preempted this with a courageous decision to hold interest rates at 4.25%. For many experts in the field, this decision is no surprise. This action follows a litany of changes introduced in years past. These amendments are part of the government’s plans to get inflation under control across the UK economy. Today’s interest rate is down to 4.625%, a 0.625% decrease from the high of 5.25% set in August 2023. The Bank is sailing through stormy economic seas that many say are defined by inflationary pressures and geopolitical risk stemming from the war in Ukraine.
Since the start of the Covid-19 pandemic, the Bank of England has undertaken numerous changes to interest rates. Just a few short years ago, in January 2020, rates were still 0.75%. By March 2020, they had already crashed to historic lows of 0.1% as economic activity came to an abrupt halt. The Bank started increasing rates one by one to react to inflation, leading up to the current peak rate of 5.25% last summer. Once they’d hit that precipice, the Bank quickly took action. It first lowered rates to 5% in August 2024, then further to 4.75% in November and finally to 4.5% in February 2025.
Several reasons played a role in the decision to leave the rate unchanged. Continuing worries over inflation and the overall UK economic situation were major factors in this decision. Bank of England Governor Andrew Bailey stated that “interest rates remain on a gradual downward path,” indicating a potential for further reductions in the near future. He noted that the Bank would be monitoring trends and fluctuations in the labor market. In recent months it has started to make its first moves of softening.
The Bank of England frequently again how external economic factors could disrupt their economy. In particular, they watch for rising oil prices as the situation continues to develop in the Middle East. These all combine to create a chilling environment of uncertainty, forcing the Bank to continue to change its game plan.
As it stands, interest rates serve as both a cost for borrowing money and a reward for savings, making their management crucial for economic stability. The current rate of 4.25% is a sign of the Bank’s desire to continue combating inflation while promoting stable economic and job growth.
It is in this context that the Bank is looking to pre-emptively cut interest rates over the coming months. They project to be cutting rates another 2 times this year at most. Bailey drew attention to what he described as the ‘hungry for growth undertow’ in the UK economy. He could, for instance, credit outside shocks affecting it.
“In the UK we are seeing signs of softening in the labour market.” – Andrew Bailey
The current economic environment is daunting, bringing uncertainty to consumers and businesses across the country. Retaining interest rates at 4.25% would produce a more stable environment in the short term. What happens in the long-term is entirely contingent on a host of domestic and international considerations.