Bank of England keeps interest rates at 4%

Written by Michael Griffiths

18/09/2025

The Bank of England (BoE) has opted to hold interest rates at their current level of 4%.

This follows the 0.25% reduction to the base rate in August, the fifth cut by the central bank since it started the cycle of bringing interest rates down from a peak of 5.25% in August 2024.

At its meeting this week, the nine members on the BoE’s Monetary Policy Committee (MPC) voted by a majority of seven to two to maintain the base rate at 4%. Two members were in favour of a further 0.25% cut which would have taken rates to 3.75%.

The BoE’s decision to maintain interest rates follows yesterday’s announcement from the Office for National Statistics (ONS) that inflation remained at 3.8% in the year to August, unchanged from its level in July.

In its latest report released today, the MPC suggested that inflation was expected to “increase slightly in September”, before falling towards its 2% target after.

“The committee remains alert to the risk that this temporary increase in inflation could put additional upward pressure on the wage and price-setting process,” the MPC said. “Pay growth remains elevated but has fallen and is expected to slow significantly over the rest of the year.”

The central bank’s move to hold rates had been widely expected. Global head of macro and dynamic asset allocation at Mercer, Rupert Watson, commented: “We expect UK inflation to fall back to target by the end of 2026 as soft economic growth leads to further weakness in the labour market and lower wage growth. We expect the Bank to cut interest rates further over the next few quarters.”

In a separate vote, the MPC also opted by a majority of seven to two to reduce the stock of UK Government bond purchases held for monetary policy purposes by £70bn over the next 12 months, to a total of £488bn.

Watson added: “The Bank also announced it would reduce the amount of gilts it sells as part of its quantitative tightening programme and also focus its sales at the short end of the curve. Longer dated gilts have been weak with some blaming the Bank’s active sales for some of this weakness.

“From a tactical perspective we are overweight long dated gilts. We think the UK isn’t facing a fiscal crisis and that inflation, wage growth and interest rates will fall over the next 12 months.”

The MPC now has two more base rate decisions to make this year, with the next one due on 6 November, before the Chancellor announces her Budget on 26 November. The BoE will announce one final rate decision of the year in December.

Related Articles