Mike Ambery, Retirement Savings Director at Standard Life, part of Phoenix Group, said: “Today’s decision to hold interest rates at 3.75% reflects the Bank of England’s continued caution following December’s rebound in inflation. While some of that rise is likely to have been seasonal, driven by Christmas-related spending, inflation remains well above the Bank’s 2% target, leaving policymakers wary of easing too quickly and risking hard-won progress. The decision also reinforces the view that the UK’s ‘neutral rate’ - the level at which the economy can grow without fuelling inflation - may now be higher than during the historic low-rate period between 2008 and 2022. If so, interest rates could ultimately settle above the levels seen for much of the 2010s, even when cuts resume. Although gradual rate cuts are still expected later this year, the timing will depend on how domestic inflation evolves - including the impact of measures announced in the Chancellor’s Autumn Budget - as well as wider factors. In the US, the Federal Reserve has paused after a series of cuts and is expected to remain cautious through 2026, but any shift in stance, particularly in the context of an upcoming change in leadership, could influence global financial conditions and the Bank of England’s own decisions. The current environment has practical implications for households. Borrowers, especially those on variable or tracker mortgages, will continue to feel pressure, though a more stable rate outlook can help with planning and those nearing the end of a fixed deal should review their options early. Many savers are benefiting from stronger cash returns.
Susannah Streeter, Chief Investment Strategist, Wealth Club: ‘’The Bank of England has pushed a big red pause button on interest rate cuts as caution remains the name of the game and policymakers assess flickering growth and stubborn inflation. Although the signs are that the price spiral will be dampened down in the coming months, they’ve judged that it’s still too early to move, especially given signs that growth in the economy is showing tentative signs of making a comeback. The latest PMI snapshot showed activity accelerating with Budget blues being cast aside. Plus, with headline inflation ramping up at the last count, and wage growth still uncomfortable, it’s not a clement environment for interest rate cuts. Still, it was a closer call than expected, and it puts a cut in March still very much in the picture. The labour market is showing weakness, Budget changes are set to bring down energy and transport costs and a wave of cheaper Chinese goods are heading this way. So, more policymakers could well be swayed to vote for lower borrowing costs next month. But these are volatile times, with the overall outlook in a state of flux, given ongoing geopolitical tensions, erratic US trade policy, and a tech sell off roiling markets. So, the Bank’s decision makers will still want more clarity on what could be ahead, before tinkering with borrowing costs again.‘’
George Brown, Senior Economist, Schroders said: "Today’s rate decision was seen as a foregone conclusion, but the Bank's close vote to hold rates suggests cuts are not a matter of if, but when. The Bank's guidance had been cautious and non-committal, reflecting unease about the persistence of underlying inflation. That had left Governor Bailey holding the deciding vote - an unusually fine balance that underlines just how delicate this stage of the rate cycle has become. But his messaging suggests there should be further easing, with Mann also now leaning towards easing rates. The temporary disinflationary window ahead should offer enough cover to justify one or two more cuts. However, the Bank will have to act soon if it intends to cut, before that window closes and the opportunity for further easing slams shut in the second half of the year."
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