Increase in mortgage rates on hold after recent interest rate adjustments
The Bank of England has announced that it will maintain the interest rate at 5.25%, marking a pause in the 14 consecutive rate increases over the past 18 months [1]. This decision follows a similar path as the Federal Reserve's decision yesterday.
The latest update follows the Monetary Policy Committee (MPC) meeting ending June 18, 2025. At the meeting, the majority of the committee voted to hold rates steady at 4.25%, with three members voting for a 0.25 percentage point cut to 4% [1]. This indicates some divergence within the committee.
The MPC has noted substantial disinflation over the past two years, with inflation pressures receding due to prior monetary tightening. Although inflation has come down closer to the target, it remains above 2% [1]. The Bank is therefore maintaining a restrictive stance to continue squeezing out persistent inflationary pressures while allowing some gradual easing of policy restraint.
Economic growth in the UK appears weak, with signs of a loosening labour market and moderating wage growth. This weakening demand is encouraging some members to consider rate cuts [1][2]. Market analysts widely predict that the Bank of England is likely to start cutting rates in the near term, possibly beginning with a 0.25 percentage point cut in August 2025 [2].
However, the Bank faces a complex balancing act because recent inflation data (June 2025) showed a slight uptick to 3.6%, driven by food and transport costs. This higher inflation will moderate how quickly or aggressively cuts can be made, as too rapid easing risks reigniting inflation [2].
Small and medium enterprises (SMEs), which represent approximately half of all private sector turnover in the UK, have been urged to continuously assess their existing lending structures and proactively prepare for the challenges ahead [3]. Douglas Grant, CEO of Manx Financial Group PLC, stated that the pause in interest rate hikes provides reassurances for businesses and consumers [3].
Tom Hopkins, portfolio manager at BRI Wealth Management, commented on the Bank's decision, emphasising the need for innovative measures to safeguard the viability of SMEs [3]. The Bank continues its program of reversing quantitative easing.
This pause in interest rate hikes is significant, marking the end of the longest period of 'tightening' - a lift in the cost of borrowing - in recent Bank of England history [4]. The MPC raised rates 14 times since December 2021 [4]. The UK's annual inflation rate slowed due to weaker growth in food prices and monthly falls in the cost of hotels and air travel [5]. Four members of the Bank's monetary policy committee (MPC) voted to raise the cost of borrowing [5].
In conclusion, while the Bank of England has paused interest rate changes by maintaining rates at 5.25% in June 2025, the outlook points towards potential gradual rate cuts starting in August 2025, contingent on how inflation and labour market data evolve. The Bank continues quantitative easing and remains cautious, balancing the progress of disinflation with the need to stimulate weak growth [1][2].
The Business community, including Small and Medium Enterprises (SMEs), is reassured by the Bank of England's decision to pause interest rate hikes, according to Douglas Grant, CEO of Manx Financial Group PLC [3]. However, the Bank's Monetary Policy remains somewhat restrictive as they aim to continue addressing persistent inflationary pressures, while considering future adjustments to the finance landscape, specifically rate cuts, in light of economic growth and inflation trends [1][2].
