INTEREST RATES SET TO BE HELD AT 4.25 PER CENT – WHAT IT MEANS FOR MORTGAGES

The Bank of England will hold interest rates at 4.25 per cent on Thursday, economists predict, which could mean higher mortgage rates for longer.

Almost all major economic forecasters say the Bank will not cut rates, but could do so at its next meeting in August.

Inflation sitting well above 3 per cent – something that is expected to continue when the latest figures are released on Wednesday – is one key factor behind economists’ predictions.

Another consideration is volatile oil prices. Prices have been rising in the wake of attacks between Israel and Iran.

As a result, economists are warning that the global economy faces an adverse shock, at an already difficult time for growth.

Generally, higher rates also mean high mortgage costs for households, with the price of home loans falling since the interest rate cut last month.

Some banks have been cutting rates, including Lloyds and Halifax, whilst other providers are upping theirs.

This could be bad news for homeowners who are coming to their end of their term and need to decide whether to fix, possibly at a higher rate than they’re already paying, or move onto a variable tariff which are typically more expensive.

However, some experts are more optimistic.

Ellie Henderson, an economist for Investec, said monetary policy “seems to be in a good position, allowing the Bank of England to wait and see how economic conditions and the international political backdrop evolve”.

“Although the June decision might seem clear cut, how the MPC responds to the evolving economic backdrop thereafter much depends on the details of the world in which we find ourselves.”

The Bank tends to cut interest rates as inflation gets towards its 2 per cent target.

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It last cut rates in May, from 4.5 per cent, but inflation has risen since then, and is expected to remain above 3 per cent for many months to come.

Paul Dales of Capital Economics said: “The Bank of England will almost certainly leave interest rates at 4.25 per cent at its meeting on Thursday and will keep its options open for the subsequent meeting in August.”

Thomas Pugh, chief economist at RSM UK said: “It’s a sure bet that the Bank of England will keep interest rates on hold at 4.25 per cent next week, probably by a 7-2 vote with two members preferring to cut.

“We continue to expect the Bank to keep its recent pace of quarterly cuts in the second half of the year. That means the next cut should come in August and interest rates should fall to 3.75 per cent by the end of the year.”

A note sent out by BNP Paribas also added: “We think the Monetary Policy Committee (MPC) will vote 7–2 to keep Bank Rate on hold at 4.25 per cent, with its official guidance unchanged.

“Differences of views within the MPC, trade uncertainty and data discrepancies continue to support a ‘gradual and careful’ approach to easing, in our view.”

Interest rates are generally used as a tool to control inflation. The Bank upped them multiple times between 2021 and 2023 from 0.1 per cent to 5.25 per cent, as inflation reached double-digits.

The logic is that by increasing interest rates, higher borrowing costs mean consumers have less disposable income, and so their ability to pay higher prices diminishes, slowing the rate of inflation.

Rates can drop as inflation returns to target, with the rate of price rises currently far lower than they were at their peak in 2022.

A side effect of high rates is that economic growth can slow, or there can even be negative growth.

Earlier this year, there were predictions that rates could have to fall very quickly to combat the negative effect of Donald Trump’s tariff policies on the global economy.

It was thought that plans announced by Trump in April could stifle global trade, but many of the tariffs – taxes on imports – have since been relaxed or delayed, which has led to some fears for the economy being assuaged.

Now, it’s thought interest rates may not fall quite as quickly as a result.

Some experts think there could be just one more interest rate cut in 2025.

2025-06-17T05:21:02Z