The Bank of England has today decided to hold the base rate at its current level of 4.25%.
Hot on the heels of last month’s announcement that the Bank of England marginally voted in favour of a base rate reduction (4.5% to 4.25%), today’s decision to hold at 4.25% comes as no big surprise.
You will recall we had the Spring Statement at the end of March, which received a mixed reception. On top of that, the chaos of Donald Trump’s ‘Liberation Day’ tariffs still swirl around the global economic environment and contributed to the UK economy shrinking by 0.3% in April as exports to the USA nosedived. April was also impacted by taxes being increased for businesses and household bills jumping.
Following a drop in inflation in March to 2.6%, still above the magic 2% but going in the right direction, the latest CPI figures show a bounce up to a 12-month high in April (3.4%), which is disappointing. The main drivers were household energy bills, water costs, council tax, airfares and household food bills. There’s a risk of continued rising energy prices too, due to escalations between Israel and Iran. This threatens the Strait of Hormuz, which is the only sea passage from the Persian Gulf to the open ocean, a key oil supply route. If this isn’t resolved quickly, it’ll have an impact on longer-term inflation and may affect the view that further interest rate reductions will happen before the end of the year.
Domestically, the Bank of England will be watching carefully for a weakening in the UK job market. The main concern is how the ONS’s labour force survey revealed unemployment had crept up to 4.6% as the number of payrolled employees had dropped by 274,000 over the last year.
Given all of this uncertainty, we’re not surprised that the Bank has decided to play it safe. Next announcement is August 7th.
PLG Consultants
19th June 2025
