The Bank of England has voted to keep interest rates on hold at 4.5 per cent.
This decision was widely expected amid ongoing a background of economic uncertainty and a surprise increase in inflation in the UK last month.
The Bank’s Monetary Policy Committee (MPC) voted 8-1 in favour of keeping rates on hold, with only one member voting for a quarter point cut. The Governor of the Bank of England Andrew Bailey signalled that further rate cuts this year are likely, but highlighted that geopolitical tensions had intensified in recent weeks and financial markets remained volatile.
The Bank of England said that an unpredictable US policy on tariffs could affect UK inflation, although predicting likely outcomes was “less clear” and depended in part on how other nations react.
Bailey said: “We still think that interest rates are on a gradual declining path but we’ve held them at 4.5 per cent today. We’ll be looking very closely at how the global and domestic economies are evolving at each of our six-weekly rate-setting meetings. Whatever happens, it’s our job to make sure that inflation stays low and stable.”
Last year many were expecting a more sustained cut in interest rates early in 2025. While this might have helped encourage economic growth keeping rates higher for longer will benefit pension savers looking to purchase an annuity.
Hargreaves Lansdown head of retirement analysis Helen Morrissey says: “An interest rate hold spells good news for the annuity market. Interest rates are one factor determining rates and this is why we have seen incomes soar in recent years. A 65-year-old with £100,000 can currently get up to £7,585 per year from a single life level annuity, close to an all-time high.
“[Higher rates] have seen the annuity market step out of the shadows and take centre stage with more retirees looking at whether now is the time to take the plunge and fix a guaranteed income for life.”
Evelyn Partners investment strategist Rob Clarry says: “The MPC continues to face a menacing mix of above-target inflation and elevated wage growth on the one hand, versus a soft labour market and weak economic activity on the other.”
He adds: “Markets largely took the decision in their stride, with sterling losing some ground on the dollar and gilt yields holding their gains. Looking ahead, traders assign a 66 per cent probability to a cut at the May meeting and expect the Bank Rate to end the year around 4 per cent.”
Many pointed out that the Bank’s decision to keep rates on hold may disappoint Chancellor Rachel Reeves, who is due to deliver her Spring Statement next week. This will contain UK economic forecasts from The Office for Budget Responsibility (OBR), which is expected to show that Reeves’ £10bn fiscal headroom, that was factored into the last budget, has been effectively wiped out amid higher borrowing costs and weaker economic growth than forecast.
