The Bank of England has kept interest rates unchanged at 3.75%, judging that holding steady is the safest course while it monitors volatile energy prices and persistent inflation pressures. The Monetary Policy Committee (MPC) voted 7–2 to leave Bank Rate on hold at its June meeting, with two members arguing for a 0.25 percentage point rise to 4% amid concerns that inflation could yet prove more stubborn than forecast.
Headline inflation is currently 2.8% for May, not far from the Bank’s 2% target, and the backdrop to the decision was less fraught than some had feared thanks to signs that tensions in the Middle East are easing and that inflation is not currently accelerating despite the earlier energy shock. However, policymakers still expect price growth to edge higher again later this year as higher energy and transport costs feed through more fully to the real economy.
Kevin Brown, savings specialist at Scottish Friendly, said: “With tensions seemingly easing in the Middle East – and inflation remaining at 2.8 per cent for May – the backdrop to today’s Monetary Policy Committee meeting was not as fraught as may have been feared. Policymakers have now been handed evidence that inflation is not currently accelerating despite the Middle East energy shock. The picture is still far from rosy, but households can take some relief that the Bank of England has not piled a rate hike onto an already complicated picture.
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“July’s higher energy bills have yet to feed through to households, while transport inflation has already jumped sharply on the back of fuel costs. Inflation therefore may yet climb before it falls. For households, that means the cost-of-living squeeze isn’t over, even if today’s decision avoids tightening the screw further. Reviewing savings rates, building a financial buffer where possible and considering whether longer-term money could work harder through investing remain sensible steps that individuals may want to consider in the current environment.”
Alongside Brown’s comments, the Bank has pointed to signs of a cooling economy and a softer labour market, with weaker demand for workers expected to limit the scale of future pay awards. Higher borrowing costs are already weighing on consumer spending and business investment, which should help prevent energy‑driven price rises from becoming embedded via a wage–price spiral.
While borrowers have avoided an immediate rate hike, today’s decision underscores that the cost‑of‑living squeeze is far from over and that any talk of meaningful rate cuts is likely to remain on hold until inflation is clearly on a sustainable path back to target.
