Bank of England Set to Keep Interest Rates on Hold at 4.25%
The Bank of England (BoE) is widely expected to maintain interest rates at 4.25% this week, as policymakers navigate a complex global and domestic economic landscape. According to a report by Yahoo Finance UK, the Monetary Policy Committee (MPC) will announce its decision on Thursday, and markets are betting that it will maintain its “gradual and careful” approach to easing policy.
Since August 2024, the BoE has reduced rates four times amid stubborn inflation and resilient wage growth. However, divisions have emerged within the committee, with May’s meeting revealing a more fractured consensus, dampening expectations of a faster pace of rate cuts. A subsequent batch of weaker domestic data has since revived speculation that the MPC may slow down its pace in lowering borrowing costs.
“This month’s Bank of England policy meeting should be as straightforward a decision [to leave rates unchanged] as they come,” said George Buckley, economist at Nomura, as quoted in the Yahoo Finance UK report. “We continue to look for 3.5% terminal rates by February next year — i.e., three 25bp cuts at Monetary Policy Report meetings. We think that the settling point would be at the upper end of the neutral range. This is a modestly quicker cutting cycle than the market sees.”
The central bank faces a complex global and domestic backdrop, with rising oil prices following Israeli airstrikes on Iran reigniting fears of broader conflict in the Middle East, compounding volatility already driven by US President Donald Trump’s shifting trade policy. Meanwhile, sterling has strengthened sharply against the dollar, further complicating the inflation outlook.
Domestically, the picture remains uncertain, with the UK economy contracting by 0.3% in April, reversing earlier growth. Wage growth slowed markedly in the three months to April, and the unemployment rate ticked higher, raising questions about the underlying strength of the labour market. Inflation, however, remains a central concern, with consumer price inflation originally thought to have risen to 3.5% in April, its highest in over a year, up from 2.6% in March.
“Monetary policy seems to be in a good position, allowing the Bank of England to wait and see how economic conditions and the international political backdrop evolve,” said Ellie Henderson, economist at Investec, as cited in the Yahoo Finance UK report. “Ultimately, this is a highly uncertain time that requires a potentially nimble response from central banks, limiting any great foresight.”
Economists are divided on the future path of interest rates, with some expecting a summer move. Sarah Coles, personal finance columnist at Yahoo Finance UK and head of personal finance at Hargreaves Lansdown, said: “If inflation figures don’t hold any surprises, interest rates are held, and expectations stick for two more cuts this year, we could well see rates fall again.”
Others, such as Paul Dales, chief UK Economist at Capital Economics, expect the Bank of England to hold rates steady this week but anticipate a rate cut in August. Sanjay Raja, chief UK economist at Deutsche Bank, shared a similar view, expecting the MPC to keep Bank Rate unchanged at 4.25% on 19 June but open the door to an August rate cut.
The Bank of England is set to announce its latest interest rate decision at midday on Thursday, 19 June. As Yahoo Finance UK reports, all eyes will also be on the US Federal Reserve, which is widely expected to leave interest rates unchanged at its meeting next week. Investors will be closely watching updated economic projections, seeking clues on how heavily policymakers are factoring in recent signs of economic softness and the degree of concern around ongoing trade uncertainty, unresolved fiscal negotiations, and the growing risk of conflict in the Middle East.
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