Bank of England keeps UK interest rates at 5%

The Bank of England has said it should be able to cut interest rates “gradually over time” as it has decided to keep borrowing costs at 5%.

The decision comes after prices continue to rise slightly faster than the Bank’s target, with inflation at 2.2% last month.

Bank boss Andrew Bailey said it was “essential” that inflation remained low. “So we need to be careful not to cut too much or too quickly,” he said.

Experts predict that the Bank will cut interest rates further in November.

The widely expected decision to leave rates unchanged follows a 5.25% cut in August, the first since the pandemic began in 2020.

Only one member of the Bank’s nine-member committee that sets interest rates voted in favor of a cut.

The base interest rate determines the rates that banks and lenders charge.

The higher level means people pay more to borrow money for things like mortgages and credit cards, but savers also get better returns.

Higher interest rates push up mortgage rates. This can lead to landlords raising rents to cover higher repayments.

James and his wife Sofia are among those affected, having moved to Berkshire with their one-year-old son after their rent rose by £100 a month to £1,650 in May 2024.

They moved to a smaller terraced house where they pay £1,400. They have a combined income of £54,000 and say they cannot afford a deposit to buy a house.

Sofia said: “When I went on maternity leave, I could only take 10 weeks off because we just couldn’t afford it anymore. Even that was a huge challenge, to the point where we had to put ourselves into debt.”

She said food banks helped them and that her husband sometimes had to work from home because he didn’t have money to put gas in the car.

The Bank said the decision to keep rates on hold this month was “guided by the need to squeeze out persistent inflationary pressures from the UK economy”.

Inflation is expected to rise to around 2.5% by the end of this year, but there are also suggestions that the country’s economic situation is improving.

It said it had received reports of “improving real incomes” and added that mortgage approvals had risen to their highest level since September 2022 – the month of former Prime Minister Liz Truss’s infamous mini-budget, which led to rising mortgage rates.

While the impact of two major global shocks – the pandemic and the war in Ukraine – has now subsided, prices are still rising faster than the World Bank’s 2% target.

And it is likely that inflation will continue to rise for the rest of the year.

The economic recovery has also been muted. Strong growth in the first half of the year has slowed, with consumers wary of high prices.

The Bank warned that while there was “improved sentiment and expectations” of increased economic growth, a weaker expansion of 0.3% was expected between July and September, down from 0.4%.

Economic growth in the UK has been sluggish in recent years, but the new Labour government has promised to change this.