The Bank of England is set to maintain interest rates at 4.5%, with policymakers resisting further cuts as inflation remains above target. Analysts predict potential reductions later in the year

The Bank of England is expected to keep interest rates unchanged at 4.5% when its Monetary Policy Committee (MPC) announces its decision on Thursday. While markets had speculated on potential cuts, economists believe persistent inflation concerns will delay any immediate reduction.

The Bank rate plays a crucial role in shaping the financial landscape, influencing everything from mortgage costs to business investments and government borrowing. With inflation still above the government’s target of 2%, policymakers remain cautious about stimulating excessive spending.

Markets Await the Decision

The nine-member MPC, chaired by Bank of England governor Andrew Bailey, meets eight times a year to set interest rates. Their decisions carry significant consequences, directly impacting household budgets, corporate borrowing, and the broader UK economy.

The committee last reduced interest rates in February, trimming them from 4.75% to 4.5%. While Thursday’s announcement is unlikely to bring further cuts, analysts predict at least two reductions before the end of 2025, depending on economic data and inflation trends.

Inflation Holds the Key

Recent figures show inflation rose to 3% in January, a figure still above the central bank’s preferred 2% threshold. Any move to lower rates now could risk pushing inflation higher by encouraging consumer spending and increasing demand for credit.

“Bank of England policymakers have been warning on inflation and lingering uncertainty, so further rate cutting relief for homeowners looks to be an unlikely outcome from this month’s meeting,” said Paul Heywood, chief data and analytics officer at Equifax UK.

A Balancing Act for Homeowners

For homeowners, particularly those on variable-rate mortgages or looking to refinance, the Bank’s decision carries weight. A further delay in rate cuts means mortgage costs will remain elevated, prolonging financial strain for many borrowers.

Conversely, savers benefit from higher returns on deposits, providing some relief amid economic uncertainty. The delicate balance between controlling inflation and easing financial pressure on households continues to dominate the Bank of England’s strategy.

Looking Ahead

While no rate cut is expected this week, speculation mounts over potential reductions later in the year. Many analysts forecast two cuts before December, contingent on inflationary pressures easing and economic stability improving.

For now, the Bank of England remains cautious, opting to keep rates at 4.5% as it navigates a delicate economic landscape. Whether further relief arrives in the coming months will depend on inflationary trends, economic growth, and global financial conditions.