Bank of England holds rates as inflation eases below 2.5%
The Monetary Policy Committee voted 7–2 to keep the base rate unchanged at this month's meeting, marking a third consecutive pause as policymakers wait for clearer evidence that disinflation is sustainable.
The decision keeps Bank Rate at its current level, in line with the consensus expectation in a Reuters poll of City economists earlier this week. Two members of the nine-strong committee preferred a 25 basis-point cut, arguing that real interest rates have continued to rise as inflation falls.
The Bank pointed to three reasons for caution. First, services inflation, which is closely watched as a measure of domestic price pressure, is still running above the headline rate. Second, regular pay growth has cooled but remains above the level the Bank judges to be consistent with the 2% target over the medium term. Third, sterling has been steadier on a trade-weighted basis, removing one of the disinflationary tailwinds the Bank had previously been counting on.
What it means for households
For roughly 1.6 million households on tracker and standard variable mortgages, the hold means no change to monthly repayments this quarter. Fixed-rate borrowers approaching the end of their deals will continue to see two- and five-year products priced well below the highs of late 2024, as lenders have already moved on expectations of cuts later in the year.
Savings rates on instant-access accounts have begun to drift down in advance of the next move, with several high-street banks trimming headline rates by between 10 and 20 basis points over the past month.
Outlook
Markets are pricing in roughly two further cuts before the end of the year, with the first now seen as more likely in September than August. Governor Andrew Bailey said the committee was "not yet in a position to declare victory" on inflation, but acknowledged that the trajectory was "broadly encouraging".
"We need to see the full pass-through of last year's energy moves and a further easing in services prices before we can be confident that the job is done." — Andrew Bailey, Governor of the Bank of England
The next MPC decision is scheduled for early August, alongside an updated Monetary Policy Report containing the Bank's revised forecasts for growth and inflation.
