THE Bank of England (BoE) has kept its base rate on hold at 3.75%, with experts saying the decision will bring short-term stability but leave many households and businesses waiting longer for lower borrowing costs.
The Monetary Policy Committee (MPC) voted 6 to 3 to leave rates unchanged today, in a decision that will not ease pressure on borrowers who are seeing higher mortgage rates.
For savers, the decision should help preserve relatively attractive savings rates for now, although experts warned the tax paid on interest is becoming an increasing issue as higher returns push more people over their Personal Savings Allowance.
Business owners also face continued pressure from elevated borrowing costs, with one expert highlighting that HMRC’s late payment interest remains tied to the Bank Rate, leaving companies that owe tax paying interest of 7.75%.
Newspage spoke to mortgage, finance and business experts about what the decision means for borrowers, savers and small businesses, with many describing the hold as expected but warning that it should be viewed as a pause rather than a turning point.
For savers, it’s better news
Paul Denley, CEO at London-based Oakham Wealth Management, said it’s good news for savers who may benefit from higher interest rates but disappointing for borrowers who may face higher costs.
He said: “The Bank has made the right call. The economy feels flat rather than fragile, while services inflation remains too sticky to justify an immediate cut. Holding rates provides stability without risking a fresh inflationary pulse. For borrowers, it’s disappointing but not unexpected.
“Anyone rolling off a cheap fix should budget for higher repayments rather than assume cuts are around the corner. Mortgage costs are likely to stay elevated for a while. For savers, it’s better news. Cash rates should stay attractive yet, but don’t assume your bank is paying the best.
“Loyalty is rarely rewarded, so review your accounts and consider locking in a fix while good ones last. Overall, the right decision. Cutting into sticky services inflation would have been premature – and right now, dull is exactly what the economy needs.”
Justin Moy, Managing Director at Chelmsford-based EHF Mortgages, said mortgages aren’t really affected by what the Bank of England does with its base rate.
He added: “I don’t see any need to change the base rate at this time. Mortgage rate increases are purely off higher Swap rates and future expectations of base rate decisions, not the current base rate itself. The external politics of the Middle East war is the primary reason rates have shot up over the last few weeks, and the MPC are quite divided on how to react, as the traditional inflationary pressures of overspending in the high street just don’t exist.
“This will be more about the covering words and bullet points with the decision, as that will point the markets in a certain direction. Mortgage rates have fluctuated by as much as 1% whilst the base rate has remained unchanged; that just demonstrates that market influence is more driven by what is said by the MPC than by the % rate.”
Right decision
Harvey Dhillon, Founder & CEO at Zmartly, said he disagreed with the Bank of England’s decision.
He added: “I argued for a cut this week, and I still would. A rate held is not a rate doing nothing. HMRC’s late payment interest is Bank Rate plus 4 points, so it stays at 7.75%, while HMRC pays 2.75% when it owes you. The second payment on account is due on 31 July.
“For many owners the most expensive borrowing they have is not a mortgage. It is the tax bill they are quietly running late on. Savers will be told this is good news. Few will mention that HMRC is a joint account holder. The personal savings allowance has been frozen at £1,000 since 2016, £500 if you pay higher-rate tax.
“At 5%, the best easy-access rate going, a £20,000 rainy-day fund uses up the basic-rate allowance in full, and HMRC taxes the rest, quietly, through your tax code. Two members wanted a rise last month, so treat this as a pause, not a turning point. And price the tax before you price the rate.”
Kate Underwood, Founder at Southampton-based Kate Underwood HR and Training, said businesses need the stability.
She added: “Holding rates is the right decision. Businesses don’t need another headline. They need stability. A rate cut may have lifted sentiment, but it wouldn’t change the day-to-day pressures small businesses are facing. For borrowers, it means mortgages and business loans are unlikely to get any cheaper, so cash flow will stay tight. For savers, it means they should continue to benefit from stronger returns.
“The business owners I speak to aren’t talking about interest rates. They’re talking about rising employment costs, cautious customers and whether now is the right time to invest or recruit. Holding rates won’t solve those problems, but it does provide one thing businesses desperately need, certainty. Confidence drives growth, and confidence starts with stability.”
Entirely predictable
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, said businesses needed a cut.
He added: “The Bank of England’s decision to hold the base rate at 3.75% is entirely predictable from a central bank with a long history of following rather than leading. The economy is on its knees. UK business has been hammered by £80bn of tax rises, and entrepreneurs are leaving the country in droves.
“The number of UK millionaires has dropped 7% in the last year, the lowest count since 2008, yet the Bank remains fixated on inflation that has sat above its 2% target for 24 months, driven largely by Middle East instability and energy prices. No amount of rate rises will stem that tide.”
