Bank of England Holds Rates at 4.25% But More Cuts Could Be Comin

The Bank of England (BoE) decided to keep its main interest rate at 4.25% in June 2025. This marks a pause after several earlier rate cuts, as the Bank tries to carefully balance fighting inflation with supporting the UK’s slow-moving economy.

This decision comes at a time when the UK is facing several challenges. Inflation is still above the Bank’s 2% target, making it harder for people to afford essentials like food and energy. At the same time, economic growth has slowed down, and unemployment has started to rise suggesting that businesses are struggling and people may be spending less.

Interest rates matter because they affect borrowing and saving. If rates are high, loans like mortgages become more expensive, but savings accounts pay more interest. If rates are low, borrowing becomes cheaper, which can help boost spending and investment but it can also lead to higher inflation if demand rises too fast.

Right now, the Bank of England is trying to avoid two big risks: cutting rates too quickly and letting inflation rise again, or keeping rates too high and pushing the economy into a deeper slowdown. That’s why this decision is being watched closely by economists, investors, businesses and ordinary people across the country.

Key Developments

Several important trends and decisions have influenced the Bank of England’s current approach:

• Shift in Strategy: After more than a year of raising interest rates to tackle high inflation, the BoE started cutting rates earlier this year. However, in June 2025, they chose to pause and keep the rate at 4.25%, suggesting a more cautious, data-based approach going forward.
  

• Inflation Still High: Although inflation has come down from its peak in 2023, it is still above the Bank’s 2% target. Rising food prices and higher energy costs have made it harder to bring inflation fully under control.
  

• Signs of a Slowing Economy: At the same time, UK economic growth has slowed, and the unemployment rate has edged up. This suggests that businesses are becoming more cautious, and that fewer jobs are being created.
  

• Market Expectations: Many economists and financial markets now expect the Bank of England to cut interest rates two more times before the end of 2025. They believe the Bank will act if inflation continues to fall and the economy shows further signs of weakness.
  

These developments show how the BoE is caught between two challenges: keeping inflation under control while also supporting the economy during a difficult period.

Market Reaction

The Bank of England’s decision to pause interest rate cuts has had a noticeable effect on financial markets and public confidence.

• Bond Yields Falling: Investors now expect more rate cuts later in the year, which has caused UK government bond yields to drop. Lower yields usually mean lower borrowing costs for the government and businesses.
  

• Mortgage Rates Easing: Some banks have started to lower their mortgage rates slightly, especially for fixed-rate deals. However, many homebuyers remain cautious, waiting to see if borrowing costs will fall further later in the year.
  

• Weaker Pound: The value of the British pound has fallen slightly against the U.S. dollar. This often happens when investors believe interest rates in the UK will stay lower than in other countries, making UK assets less attractive.
  

• Mixed Confidence: While some analysts are hopeful that lower rates will help boost the economy, others are warning that the UK could face a long period of weak growth if inflation stays too high and rate cuts are delayed.
  

So far, markets are reacting carefully waiting to see if future data will confirm whether more rate cuts are safe, or if inflation could rise again.

What’s at Stake

The Bank of England’s decisions over the next few months could have serious effects on households, businesses, and the wider economy.

• Households: Lower interest rates mean cheaper mortgages and personal loans, which can help families save money. However, they also mean lower returns on savings, which is bad news for pensioners and people trying to build up their savings.
  

• Businesses: Lower borrowing costs could encourage companies to invest more in equipment, staff, or expansion. But if demand remains weak, businesses may still hold back—especially if they’re worried about future interest rate changes or unstable markets.
  

• Economic Recovery: If the Bank cuts rates too slowly, the economy might struggle to recover, leading to higher unemployment and less consumer spending. But if it moves too quickly, inflation could return, hurting people’s purchasing power again.
  

• Political Pressure: With a general election expected in 2026, there is growing pressure on the Bank to support the economy. However, the BoE is independent and must balance its long-term goals especially keeping inflation under control.
  

In short, the Bank’s next moves could affect everything from household budgets to national economic stability. Getting the timing right will be crucial.

Looking Ahead

The Bank of England’s next interest rate decision is due in August 2025, and economists, businesses, and the public will be watching closely.

• Inflation and Jobs Data: In the lead-up to the next meeting, new figures on inflation, wages, and unemployment will be key. If inflation keeps falling and job losses rise, the Bank may decide it’s safe to cut rates again.
  

• Global Uncertainty: Events outside the UK such as the U.S.–EU trade tensions and changes in oil prices could also affect the Bank’s thinking. Global problems often lead to changes in supply chains and prices that impact the UK economy too.
  

• Impact on Policy: The Bank’s next move could influence government choices on spending, borrowing, and tax policy especially with a general election not far off. A slower economy could increase pressure on the government to step in with more support.
  

• Public Confidence: People across the country are hoping for lower costs, more job stability, and signs that the economy is getting stronger. What the Bank decides over the next few months could shape how confident people feel about the future.
  

In short, the BoE is in a tough position trying to protect both the economy and people’s spending power at the same time.