Bank of England holds interest rates at 4.5pc - what it means for you

The Bank of England has kept UK interest rates at 4.5%, as policymakers warned that uncertainty over global trade had intensified following new US tariffs. Eight members of the Bank’s nine-person Monetary Policy Committee (MPC) voted to keep rates on hold on Thursday while they assess the impact of economic and political developments around the world.

“Since the MPC’s previous meeting, global trade policy uncertainty has intensified, and the United States has made a range of tariff announcements, to which some governments have responded,” the committee said in a summary of its latest decision. This has seen US President Donald Trump impose tariffs on UK steel and aluminium imports, as well as on Canada, China and Mexico.

The MPC said there were risks to the economic outlook for several countries, including the UK, and uncertainties about how the policy changes could affect inflation. It stressed it was a “rapidly evolving situation, which it would monitor closely and assess further” at the next meeting in May.

Andrew Bailey, Governor of the Bank of England, said: “There’s a lot of economic uncertainty at the moment. We still think that interest rates are on a gradually declining path, but we’ve held them at 4.5% 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.”

Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, explained what this will mean for you.

Household finances

“Households pinning their hopes on a fourth interest rate cut were disappointed today after the Bank of England decided to keep the benchmark interest rate on hold at 4.5%. The rate-setting Monetary Policy Committee’s decisive 8-1 vote in favour of leaving the base rate unchanged means consumers will have to wait longer for further respite from still-high borrowing costs.

“Fourteen consecutive interest rate rises between December 2021 and August 2023 – a strategy needed to keep rapidly rising inflation in check - sent borrowing costs skyrocketing at a time when households were already grappling with the cost-of-living crisis.

“While rates have since eased with three cuts since August last year, many households are still in recovery mode, with the outlook for personal finances littered with challenges. Inflation is creeping up once again, with expectations price rises will ramp up even further from April when households must absorb a raft of bill hikes, from energy to water and council tax.

“Add in the expected inflationary effect from the increase in the employer National Insurance rate next month, along with an increase in the minimum wage and business rates, as companies choose to pass those costs onto consumers by hiking prices and households may have to brace for more pain. Firms could also limit pay growth and the weak economic growth outlook could even hit the jobs market.

"Those grappling with heavy debts or large mortgages that need to be refinanced are likely to be concerned that interest rates aren’t easing as fast as hoped. For savers, however, the news offers more hope as it raises the prospect of savings rates remaining on the higher side for longer. However, cost-of-living concerns are back on the table and households are also weighed down by a heavier tax burden as a result of personal allowances remaining frozen until at least 2028 and more people getting drawn into higher rates of tax as their income increases. Recently released data has shown the effect of such ‘fiscal drag’ with the number of people drawn into higher rate tax rocketing by 15.3% in 2022/23 alone.

“When the next rate reduction will materialise remains unclear with the Bank of England’s Monetary Policy Committee sticking to its ‘gradual and careful’ approach for now as it assesses the inflation story - maintaining its projection that the headline rate will hit around 3.75% in the third quarter - along with stuttering economic growth and the global uncertainty resulting from US President Donald Trump’s trade war.

“Consumers should tread carefully from here. Pessimism about the direction of inflation and the wider economic outlook is mounting, so running down emergency funds or borrowing to fund a major lifestyle cost should always be assessed very carefully to ensure repayments are fully affordable over the long term.

Mortgages

“Keeping the headline interest rate on hold will be a blow for mortgaged homeowners and first-time buyers hoping for further respite from high borrowing costs. While three rate reductions since last August have provided some relief from the sky-high borrowing costs of the past few years, it won’t have solved all the affordability challenges existing homeowners and prospective buyers are still facing.

“There may be better mortgage rates available, but new buyers must still be increasingly savvy to keep monthly repayments affordable - either by turning to family to help raise a bigger deposit or signing up for a mortgage with a longer term than the traditional 25 years.

“Average two and five-year fixed rate mortgages have eased over the past year, dropping to 5.39% and 5.22%, respectively, from 5.76% and 5.34% in March 2024. The average standard variable rate (SVR) is also firmly back under the 8% mark again but with inflation proving sticky, prospective buyers and those looking to refinance are likely to feel concern about the decision to pause the rate-cutting cycle this month.

“Existing borrowers on tracker mortgages must now wait until the next MPC meeting to see if their repayments ease. Meanwhile, borrowers whose ultra cheap five or 10-year fixed-rate deals - taken out before the BoE's tightening cycle began – are about to expire are still likely to face a heavy jump in mortgage costs when they refinance.

“The big decision for mortgage borrowers now centres on whether it is best to lock in another fixed-rate deal, or whether a tracker might work out best over the longer term? This is why seeking advice from an independent mortgage broker - who can scour the market for the most cost-effective solution for an individual’s circumstances – is so key.

Savers

“Keeping the base rate on hold at 4.5% will deliver some respite for savers who have seen average savings rates fall steadily over the past few months. Those that want to preserve the bumper returns they have enjoyed in recent years should act quickly though.

“With the potential for further interest rate cuts this year, anyone with money idling in an account offering an ultra-low return should hunt out a better deal while interest rates remain relatively competitive.

“Remember, the end of the tax year is just around the corner and those with large sums stashed in a regular bank or building account, putting them at risk of breaching their Personal Savings Allowance, might want to consider a more tax-efficient approach.

“Many savers are still making a real return on their savings, once inflation is factored in, but it is the post-tax net return on that cash that is savers need to consider. Increasing numbers of taxpayers are being dragged into higher rates of tax as their incomes increase, a result of most personal tax thresholds remaining on hold until at least 2028, so, for taxpayers in the higher bands in particular, real returns net of tax may only be marginally positive even on the most competitive accounts.

“Add in drastic cuts to capital gains and dividend allowances at the start of this tax year and Chancellor Rachel Reeves’ ‘painful’ tax hikes in her maiden Budget and choosing a more tax-efficient option for savings and investments, such as an ISA or pension, is a no-brainer. And for higher and additional rate taxpayers with substantial cash savings in a taxable environment, buying Gilts offers significant tax advantages.

“People have just over two weeks until the financial year draws to a close, so they need to move fast. ISAs allow savers and investors to earn income, grow their wealth and withdraw investments when they want without fear of a tax bill at the end, but they must remember this is a ‘use it or lose it’ allowance. You cannot carry it into the next tax year, so those with spare cash that want to utilise as much of this year’s £20,000 allowance before it disappears must fund an account by midnight on April 5.

“Meanwhile, topping up a pension not only boosts your retirement income in the future but also slashes your income tax bill because any contributions attract tax relief at your marginal rate. Remember, those with assets held outside a tax wrapper can also consider taking advantage of Bed & ISA or Bed & Pension rules to transfer assets. This is where investors can sell shares and funds, taking care not to incur a capital gains liability in the process, and then repurchase them within an ISA or Pension – a move that protects those assets from future tax on both income and gains.”