Bank of England holds the Base Rate at 4.5%

At its midday announcement on 20 March 2025, the Bank of England's Monetary Policy Committee (MPC) maintained the base interest rate at 4.5%. This decision reflects a cautious approach amid prevailing economic uncertainties, both domestically and internationally.

Reasons Behind the Decision

The MPC's choice to hold the interest rate stems from several key considerations. Inflation remains above the Bank's 2% target, with current levels at 3%. Projections suggest it could rise to 3.7% in the coming months, influenced by factors such as increases in the minimum wage and higher payroll taxes. Maintaining the interest rate allows the Bank to monitor these developments without exacerbating inflationary pressures.

The UK economy has also exhibited sluggish growth, expanding by only 0.1% in the fourth quarter of 2024 and contracting by 0.1% in January 2025. This stagnation necessitates a careful balance between supporting growth and controlling inflation. Additionally, external factors, such as potential trade tariffs from the United States and significant investment plans within the European Union, contribute to an unpredictable global economic environment. These uncertainties warrant a prudent stance on monetary policy.

What will the impact be?

The decision to hold the base rate at 4.5% has several implications for individuals and businesses. Variable-rate mortgage holders may see little to no change in their interest payments. However, those seeking new fixed-rate mortgages might encounter rates reflecting lenders' expectations of future economic conditions.

Persistent inflation affects the cost of living, as prices for goods and services remain elevated, meaning households may need to adjust budgets accordingly to manage these ongoing pressures. Interest rates on savings accounts are likely to remain stable, offering modest returns, while investors might continue to seek opportunities that hedge against inflation, such as equities or inflation-linked bonds.

Nathan Hall, Mortgage Broker & Protection Adviser in Southend, Essex said: 

“The Bank of England's decision to maintain the base interest rate at 4.5% reflects a measured response to current economic indicators and uncertainties. This approach aims to balance the objectives of controlling inflation and supporting economic growth, with direct effects on borrowing costs, savings returns. With all these challenges, it will be worthwhile speaking to Thomas Oliver about mortgage decision and personal financial planning to help you meet your financial goals.”