Bank of England holds base interest rate at 4.5%

The Bank of England’s Monetary Policy Committee (MPC) has voted to hold its base interest rate at 4.5% after agreeing a small 0.25 percentage point fall in February.

The decision follows recent rising inflation, which saw the CPI rise to 3% in January, and sparked some speculation that the Bank’s economists could reverse previous rate cuts to help keep price rises in check. Despite this speculation, MPC members voted 8-1 in favour of holding rates at their current level of 4.5%, with the vote against the decision preferring a second consecutive cut in rates.

Looking ahead, the Bank of England anticipate inflation will continue to rise and peak at around 3.75% in the third quarter of 2025 before falling again towards the Bank’s 2% target, and has proposed keeping interest rates at a high enough level to curb faster prices in the medium term. However, the Bank of England also highlighted growing uncertainty in the global economy as a result of imposition of import tariffs by US President Donald Trump as well as retaliatory action by countries affected. Prospects of an end to conflict in Ukraine meanwhile, which had sparked high inflation due to its impact on global oil and gas supply chains, offer hope of a knock-on impact in reducing inflation in the UK.

The Bank of England’s decision will increase pressure on Chancellor Rachel Reeves to bring good news to households and businesses when she sets out plans to drive economic growth in her first Spring Statement on 26th March. The address will also coincide with the publication of February inflation data.

The hold to interest rates, which will be followed by a number of rises to household bills including Council Tax, water bills and telecoms contracts in April, will be unwelcome news for mortgage holders and household finances. For businesses, the prospect of higher inflation, on top of rising wage costs as a result of measures in October’s Budget measures, and continued higher borrowing costs will also raise uncertainty that the Chancellor will look to balance with announcements of growth plans next week/