Bank of England keeps interest rate at 4% as inflation worries linger

The Bank of England has held its base rate at 4%, keeping borrowing costs unchanged for now. 

The Bank of England decision means mortgages, loans and credit cards won’t get any cheaper just yet, as the Bank continues its fight against stubborn inflation.

Inflation is still proving hard to shift. Although the Government has said it’s focused on keeping prices under control, including through income tax rises trailed this week by Chancellor Rachel Reeves, the Bank seems unconvinced that those steps will be enough.

Income tax hikes reduce the amount of money people have to spend, which in theory should help cool prices. 

But by keeping rates steady, the Bank appears to be signalling that it doesn’t yet trust that inflation will come down quickly on its own.

Kevin Brown, a savings expert at Scottish Friendly, comments: “The Bank of England’s (BoE) decision to hold rates today shows it is still treading carefully despite inflation coming in flat in August. 

“That said, a Christmas rate cut now looks likely, with markets pricing in a strong chance of a 25-basis point cut next month. 

“However, we don’t believe that will result in an opening of the floodgates – memories of double-digit inflation are still fresh and the BoE will want to avoid reigniting price pressures.”

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What it means for your money

For households, it’s more of the same: higher borrowing costs and expensive everyday living. Energy, food and housing costs remain high, leaving many families with little room to save or invest.

Experts say now’s the time to make sure your savings are working as hard as possible. Indeed, some are emphatic that this is good news for savers.

“A hold at 4% is welcome news. For too long, a low base rate has resulted in returns on savings that fail to keep pace with inflation,” says says Adam French, INTEREST by Moneyfacts Editor-at-large.

“As a result, British savers are losing purchasing power on their deposits, with real returns regularly dipping below zero. This is akin to a farmer being forced to sell milk at a loss, while banks profit by lending out that money in the form of mortgages and loans.

“Over the last fifteen years of historically low rates followed by an inflationary shock, inflation has outpaced typical savings account returns by 17%. 

“While savers have effectively lost purchasing power on their deposits house prices have outpaced inflation by 11%, in part driven by cheap borrowing – widening wealth inequality between those that own property, and those that do not.”

The bigger picture

The Bank’s cautious stance suggests that rates could stay higher for longer, even as inflation starts to ease. 

That could keep pressure on household budgets well into next year.

Derrick Dunne, CEO of YOU Asset Management, explains: “This hold is highly instructive of the concern that now appears to be creeping up on MPC members around inflation. 

“Until now, the Bank of England has more or less cut its base rate on a predictable three-month schedule. We have had five cuts in succession this way. Behind other central banks such as the ECB on eight, but predictable nonetheless. 

“A decision to hold, then, is a significant signal that it is worried about how ingrained inflation might now be in the UK economy. With the Budget looming, it would appear, like the rest of the economy, the MPC is now in ‘wait and see’ mode on what happens on 26 November.”

While there are early signs that price growth is slowing, policymakers clearly believe it’s too soon to declare victory over inflation, meaning the cost-of-living squeeze isn’t over yet.