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The Bank of England may have kept rates unchanged in June, but this is unlikely to remain the case once we reach Autumn.
Against a backdrop of armed conflict, tariffs and inflationary pressures, it’s little wonder the Bank of England is holding fire on interest rate cuts and kept the cost of borrowing at 4.25% at its latest meeting.
The spike in the oil price stemming from the conflict in the Middle East increases inflationary risks, if it’s sustained. Meanwhile, the 9 July US tariff deadline is also coming up fast, which might herald a fresh set of economic circumstances.
The probability of more interest rate cuts later this year went up immediately after the Bank of England’s announcement on 19 June. The dates with the highest probability of a cut are 6 November and 18 December, meaning that anyone expecting lower borrowing costs might have to wait a bit longer.
| Market view on future UK interest rate decisions | |||
|---|---|---|---|
| Meeting date | Probability of cut | Probability of no change | Probability of hike |
| 07-Aug-25 | 55.9% | 44.1% | 0% |
| 18-Sep-25 | 77.8% | 22.2% | 0% |
| 06-Nov-25 | 87.5% | 12.5% | 0% |
| 18-Dec-25 | 93.2% | 6.8% | 0% |
| Source: AJ Bell, LSEG | |||
How did the Bank of England’s experts vote?
The Bank of England’s monetary policy committee is made up of nine members; collectively, they are responsible for making decisions about the official interest rate in the UK. The committee meets eight times a year and for each meeting, the policy with the most votes wins.
The latest meeting saw six members vote to keep rates unchanged. However, three members of the committee voted to cut base rates to 4% at the latest meeting.
Those in favour of cutting on the committee pointed to a loosening labour market in the UK and risks to global growth as reasons why a rate cut might be in order. The remainder of the committee remains more circumspect, but it will now only take two of them to peel off in favour of a rate cut to push one through.
What’s happening with mortgage rates?
Mortgage rates have continued to decline, but that’s almost certainly a result of previous interest rate falls feeding through and competitive pressure in the mortgage market.
The latest decision from the Bank of England doesn’t hugely alter the near-term interest rate outlook, and so the effect on mortgage rates is likely to be minimal but we may see some small rate cuts trickling through.
Of greater importance is the current conflict in the Middle East and further developments in US trade policy around the 9 July tariff deadline, which could well shift economic forecasts and have a significant impact on the UK mortgage market, for better or worse.
What’s happening with interest rates on cash savings?
Cash rates have been declining, with the average easy access savings account now paying 2.7%, according to Moneyfacts. That’s below the current rate of inflation.
While this is a backward-looking metric, the Bank of England expects the CPI measure of inflation to remain at current levels for the rest of this year.
After a sugar rush of high cash rates, savers might now be looking at their returns with some measure of disappointment.
It remains to be seen whether lower rates will tempt savers to move out of cash and into riskier assets in search of better long-term returns. For many people cash is the only port of call they consider as a home for their savings, and they accept taking a ‘like it or lump it’ attitude to the returns they receive. Even if you invest, it’s good practice to keep some of your money in cash for emergencies.
Laith Khalaf: Head of Investment Analysis
Laith Khalaf is AJ Bell's Head of Investment Analysis. He joined the company in 2020 and continues to explore the world of personal investing, providing research and analysis to both AJ Bell customers and the...
