UK interest rates: What the latest decision means for savings and mortgages and when rates will be cut

A cut in interest rates could be just weeks away despite the Bank of England sitting on its hands at its latest meeting, as policymakers warned of an uncertain outlook amid escalating global trade tensions.

Eight members of the central bank’s nine-person monetary policy committee (MPC) voted to keep the base rate at 4.5 per cent while they assess the impact of economic and political developments around the world.

The MPC said there were risks to the economic outlook for several countries, including the UK, and uncertainties about how the policy changes could affect inflation. It stressed it was a “rapidly evolving situation, which it would monitor closely and assess further” at the rate-setting next meeting on May 8. A further five meetings are then due to be held before the end of 2025, in June, August, September, November and December.

The Bank of England's monetary policy committee voted to hold the bank base rate at 4.5% at the March meeting but further cuts are expected before the end of 2025.

The Bank of England uses interest rates as a tool to control inflation, targeting a consumer prices index (CPI) inflation rate of 2 per cent. CPI inflation nudged up to 3 per cent in January, according to the latest official figures, which the MPC said was higher than it had been expecting and that it needed to pay close attention to any signs of lasting inflationary pressures. That inflation rate still remains well below the 11.1 per cent peak hit in late 2022.

Luke Bartholomew, deputy chief economist at investment firm Aberdeen, said the decision to hold rates at the March meeting came as no surprise, but noted that one MPC member, Catherine Mann, had gone from voting for a half-point cut previously to now voting to keep policy on hold.

“The bank has a very challenging economic environment with growth having slowed but inflation pressures remaining elevated,” added Bartholomew. “This will keep the bank on its ‘gradual and careful’ cutting path for now, with another cut likely in May. But beyond that, much will depend on trade policy out of the US and the fiscal announcements coming from the Chancellor at the spring statement next week.”

Rob Morgan, chief investment analyst at Charles Stanley, said: “Overall, with an array of moving parts the bank judged back-to-back cuts inappropriate, but there were signals that interest rates will be reduced again later this year.

A cut in mortgage rates would come as a welcome boost to the housing market.

“One of the nine committee members voted to cut, a count that will surely increase by the time of the next meeting in May. With inflation showing some stubborn tendencies but reasonably well behaved, concerns about growth could well come to the fore by this point.”

The MPC’s decision came a day after the US Federal Reserve also opted to keep its base interest rate on hold, warning that trade tariffs had increased uncertainty over the economic outlook. The policymakers also cut the outlook for US economic growth and raised projections for price rises.

Meanwhile, the Bank of England said it weighed up developments in the UK jobs market following the UK government’s autumn Budget, which laid out plans to raise taxes for most businesses. More firms were reporting hiring pauses or freezes, and they planned to review staffing levels through natural attrition or redundancies if the outlook did not improve, the bank found.

Mark Hicks, head of active savings at financial platform Hargreaves Lansdown, said the rate hold signalled “good news for savers”, who can expect to enjoy another month of robust returns in the countdown to the end of the tax year.

“It’s not just that [interest] rates are on hold this month, but when we do get cuts - possibly later this spring - they’re likely to be few and far between,” added Hicks. “This year the market is only pricing in one in May or June, then another around September. It’s why there are such great rates sticking around, with the best fixed savings deals hanging on above 4.5 per cent and the best easy access at 4.75 per cent.

“The hold on rates doesn’t mean you can afford to do nothing. Rates might not be moving fast, but they’re on their way down.”

Sarah Coles, head of personal finance at Hargreaves Lansdown, said “no news isn’t good news for mortgage holders” who will now need to wait longer for any cuts.

She noted: “Short-term movements are hard to predict at a time when there’s so much uncertainty in the global economy. So rather than trying to second guess what Donald Trump plans for tomorrow, if you have a remortgage coming a few months down the track, it’s a good idea to secure a rate as early as possible. That way, if rates rise in the interim, you’ve locked in a cheaper deal, and if they fall, you can shop around for something better closer to the time.”

John Fraser-Tucker, head of mortgages at Mojo Mortgages, said: “The Bank of England’s decision to hold the base rate at 4.5 per cent reinforces stability in the mortgage market, which is a positive signal for borrowers.

“Whilst the base rate remains unchanged, the average mortgage rate has been on a downward trend over the last six months. For example, the average two-year fixed rate has fallen from 5 per cent to 4.64 per cent, and the average five-year fixed rate has dropped from 4.6 per cent to 4.52 per cent.

“This shows that rate pricing is reflective of broader economic conditions and that those who are set to remortgage or buy their first home soon are likely to secure a more favourable mortgage rate than they would have six months ago.”

What now for interest rates as school fees push UK inflation to 10-month high of 3%?