Bank of England continues to hold interest rates at 5.25%

Leading economists on the Monetary Policy Committee (MPC) of the Bank of England have once again chosen to hold interest rates at their current 16-year high of 5.25%.

Committee members voted 7-2 in favour of keeping rates at 5.25% for at least a further six weeks; the two members voting against the decision called for a 0.25 percentage point drop in interest rates. The decision, the eighth consecutive call to hold interest rates, comes despite ONS data revealing the headline rate of inflation fell in May to the Bank’s 2% target rate.

While inflation has fallen back to target levels, minutes from the MPC’s meeting reveal that members were swayed in favour of delaying a rate cut by higher inflation in some segments of the economy, and the belief that some inflationary risk factors remained high. While senior figures at the Bank of England have avoided any public comments in the run-up to the General Election on July 4th, details from the MPC’s meeting also raise hopes that the base rate will start to fall in the remaining half of the year, perhaps as soon as the committee’s next meeting on 1st August.

The Bank of England base interest rates determine how much interest is payed by banks to borrow money from the UK’s central bank, and influences the interest paid on mortgages, loans and credit cards by retail banking customers, as well as the rates earned on savings.

Since December 2021, interest rates have risen to their highest level since prior to the 2008 Financial Crisis, which ushered in over a decade of close-to-zero interest rates. Recent rises have occurred in order to combat high inflation following the impact on food and energy prices after Russia’s invasion of Ukraine: increasing interest rates helps limit the availability of credit in the economy, slowing spending and discouraging price rises. Should rates fall later this year, it will be the first drop in interest rates since early 2020, when the Bank of England base rate reached a record low of 0.25% as the economic impact of the global Covid-19 pandemic began to be felt.