The Bank of England has held interest rates steady at 4.25%, a decision that had been widely expected by markets but still closely watched amid ongoing uncertainty over the inflation outlook.
The move – in what was a split decision – follows the Fed’s decision to hold US rates last night as well as fresh data showing UK inflation at 3.4%—well above the Bank’s 2% target. It comes at a critical juncture, as policymakers balance the need to control price pressures with growing calls highlighting the need for – and risks to – economic growth.
For wealth managers, the decision reinforces a cautious near-term outlook for interest rate cuts and raises important questions around asset allocation, income strategies, and client positioning in a still-volatile macroeconomic environment.
Investment strategists have been sharing their reaction to this latest interest rate news and what it means for markets, asset allocation and investment decisions as follows:
Marcus Jennings, Fixed Income Strategist, Global Unconstrained Fixed Income, Schroders, said:
“Market expectations were low for this Bank of England meeting and in the event, it proved to be one of the less volatile moments for the gilt market. The Bank has recently reiterated a gradual approach to rate cuts and the macro developments since the last meeting have broadly played into this view.
“Unsurprisingly then, the tone of today’s meeting was largely unchanged compared to previous guidance, even if the vote split skewed slightly dovish relative to consensus. With a nod to more slack in the labour market, it should give the Bank more confidence to continue easing at a gradual pace later this year.”
Jeremy Batstone-Carr, European Strategist, Raymond James Investment Services said:
“As widely expected, the Bank of England’s rate-setting Monetary Policy Committee (MPC) kept UK interest rates unchanged on Thursday, in a decision that was not unanimous. Although the MPC has telegraphed that it would prefer to cut rates at every other meeting, three of the Committee’s more dovish members voted for a further easing of 25 bps. This split decision signals that the central bank is preparing to loosen monetary conditions again, possibly as soon as August.
“Evolving economic data and confirmation that the UK and US have reached an understanding in relation to traded goods have bolstered the case for further policy accommodation. Following a strong GDP outturn over Q1, April’s data confirmed that the year’s strong start was largely driven by firms front-loading activity and exports to beat US tariff implementation from early April. April’s 0.3% contraction after the 0.7% strengthening to start the year points to a further unwinding of over the prevailing quarter.
“Recent commentary from senior officials confirms that the MPC is watching the evolution of labour market conditions extremely closely. Three members, including Governor Mr. Andrew Bailey, have highlighted the significance of wage trends when formulating monetary conditions. In this context, the latest data confirmed that not only are employment conditions softening, the pace at which average earnings are increasing has eased from 5.5% in March to 5.1% in April and close to the Bank’s 5.2% forecast.
“Pulling the above together, the key takeaway from today isn’t the rate decision, but rather the clues the tenor of the accompanying statement has given as to when rates might be cut again. The next meeting concludes on 7th August; assuming anticipated trends in inflation, wages and economic activity remain on track, a further 0.25% cut looks to be very much on the cards.”
Lindsay James, investment strategist at Quilter, said:
“Events of recent weeks means all hopes of the Bank of England moving faster to cut interest rates have been extinguished. As such, it comes as very little surprise that the Monetary Policy Committee has chosen to hold rates at 4.25%. Although we had three votes for a cut, ultimately inflation continues to drive decision making, and with the headline figure remaining elevated earlier this week, there is very little movement just now for the committee, and that is before global events are factored in.
“We are still awaiting the full impact of Donald Trump’s tariffs to show up in the prices of goods. We are approaching the end of the 90-day pause on reciprocal tariffs, and what happens from there is really anyone’s guess. Even with the US-UK trade deal, the raft of tariffs on other nations would likely be felt in some form here too. In particular, Europe looks the least likely to cave to Donald Trump, and given it is the UK’s biggest trading partner, there will be knock-on effects.
“The bigger short-term impact will come from the rising tensions in the Middle East. Hope of any de-escalation looks slim, particularly given the ‘will he, won’t he?’ type comments from the President on US involvement in the last few days. This war will have a significant impact on global energy prices given Iran’s role in oil production. Iranian oil now represents a not insignificant 8% of global production, so any targeting by Israel or the US is going to have a real impact on global oil prices. With Iran also not looking like it will surrender at all, it leaves the possibility open that it could do something drastic and cripple global shipping lanes in the Strait of Hormuz. If this were to be shut off to commercial ships, it will cause another inflationary shock.
“It is such a difficult picture to navigate for the Bank of England, and as such it will act more cautiously, despite a desire from the market for rate cuts. Despite strong growth in the first quarter of the year, the expectation is the UK economy will stagnate again in the second half, making the need for rate cuts more prominent. But with risks on the global stage not only uncertain but also substantial, the mantra of rates being ‘higher for longer’ will continue.”
Tom Stevenson, Investment Director, Fidelity International, said:
“The Bank of England, which held interest rates at 4.25% today, is being pulled in opposite directions. On the one hand, the UK economy contracted sharply in April, wage growth has slowed, unemployment is creeping up, and business confidence is faltering. There is an argument to lower borrowing costs, therefore, to kick-start growth.
“On the other hand, UK inflation remained high in May at 3.4% – well above the Bank’s target of 2%. The rising price of food, furniture and household goods was partly to blame, and the conflict in the Middle East could complicate things further. Tensions have caused oil prices to surge, and this could eventually translate into higher household energy bills. Services inflation, a key measure for the Bank of England, slowed to 4.7% in May, but remained higher than many would like.
“The UK is also treading a careful path between the United States and Europe. The European Central Bank is already nearing the end of its rate-cutting cycle, having lowered borrowing costs to just 2% earlier this month. In contrast, the Federal Reserve is cautious. Yesterday it held rates in the 4.25%-4.5% range for the fourth time.
“These competing forces are taking their toll on the Monetary Policy Committee, which has become more divided in its thinking. Small, staggered rate cuts are in vogue for now – but we are only halfway through an eventful year.“
John Payne, Senior Economist at Dun & Bradstreet, said:
“True to form, the Bank is maintaining its cautious stance, having avoided back-to-back cuts since it began easing rates last year, amid persistent inflation concerns. Policymakers face a challenging economic environment with a sharp GDP contraction in April, even as inflation remained elevated, driven in part by rising fixed costs for essentials like electricity and water. Households likely face a rocky road ahead, with the unemployment rate rising due to greater costs for businesses to employ workers, particularly at the lower-income levels.
“International headwinds are also gathering. If the US presses on with higher tariffs, UK exports could take a hit, dampening growth and job creation. While the UK has secured some exemptions and more clarity is expected after 9 July, the Bank appears to be in ‘wait-and-see’ mode.
“Meanwhile, tensions in the Middle East pose a fresh inflation risk. Any disruption to supply chains or energy imports could reignite price pressures, echoing the 2022 – 2023 spike triggered by Russia’s invasion of Ukraine.
“Altogether, a volatile mix of trade and geopolitical developments have added a great deal of uncertainty for British exports and the cost of imported energy, adding complexity to the Bank of England’s path of interest rate cuts. In this climate, businesses must stay agile, monitoring developments closely and, where needed, adapting supply chains, sourcing strategies or target markets to manage risks linked to tariffs and shifting global demands.”
Patrick O’Donnell, Chief Investment Strategist at Omnis Investments, said:
“No change, as expected. However, there is a bit of a surprise in the voting pattern. Whilst the current elevated rates of inflation and wages remain a challenge for the BoE, the recent labour market is beginning to come more into focus. We expect the labour market trend to continue and think that there is an attractive asymmetry to short-dated bonds at the moment, with more rates cuts to be delivered than what is currently discounted in markets.“
Derrick Dunne, CEO of YOU Asset Management, said:
“The decision to hold off on further rate cuts, despite earlier indications that it was on the path to lower levels just illustrates quite how difficult the current situation is. On the one hand the economy is looking increasingly fragile, while employment is evidently on a downward trajectory. On the other, inflation is stubbornly above target and geopolitical concerns are just reinforcing the potential for further stubbornness.
“Last month’s decision was highly divided. This month’s decision to hold was more emphatic at 6-3. But the Bank is hesitating at a critical moment for the economy. The transmission of monetary policy takes time, which doesn’t currently look to be on the MPC’s side. The expectation now is for a cut in August. But the chief concern reflects something that was also apparent in 2022 – that the Bank didn’t move ahead of the economy to prevent a worse outcome. At that time it was the threat of higher inflation. Now the threat is a painful recession.
“For those invested in the UK or working toward retirement, the picture remains one of uncertainty.“
Felix Feather, Economist, at Aberdeen said;
“As expected, the Bank of England kept its policy rate on hold at 4.25% today. But the vote on the MPC was marginally closer than expected, with three members voting for a cut.
“The slightly more dovish than expected vote split doesn’t change our view that the Bank of England is most likely to stick to a quarterly pace of cuts going forward in line with its “gradual and careful” guidance. But it does suggest the MPC is somewhat sensitive to weaker labour market data, and serves as a reminder of the downside risks to our rate call.
“Meanwhile, further escalation of the conflict in the Middle East could push up on UK inflation, which could see the Bank move more cautiously.“
Susannah Streeter, head of money and markets, Hargreaves Lansdown, said:
“Policymakers are in a stalemate. Growth has seized up, but inflation has stayed stubbornly sticky. Trade deals have cleared some economic clouds, but conflict in the Middle East threatens further turmoil. Energy prices looked like they were on their way down, but are now ramping back up. The labour market has shown signs of easing but not enough to erase worries about hot wage growth.
“In every direction, there’s a conundrum to confront, so policymakers have judged that pressing the pause button on rates is the best option for now. Given the unpredictable winds whistling through the world, global growth is set to slow, keeping activity in the UK highly sluggish. The economy will need a shove to get moving again, and so two interest rate cuts are still on the horizon this year. Hopes for a summer rate reduction haven’t completely faded, with bets ramping up that a cut in August could provide the rays of relief that borrowers have been waiting for.“
Daniele Antonucci, a Quintet Private Bank (parent of Brown Shipley) on UK interest rates, said:
“[The fact] that the Bank of England held interest rates at 4.25% was as expected. While the US tariff impact might turn out to be less severe than thought, the more interesting bit is that the Bank is now focusing on a range of risks, from a weaker labour market to higher energy prices given geopolitical uncertainty in the Middle East. But inflation risks remain and the vote 6-3 to keep rates on hold is another surprise as the major forecaster polls had signalled a 7-2 vote.
“Importantly, the central bank is keeping its guidance that it continues to be gradual and careful with rate cuts. We recently bought gold as we think the US dollar is likely to weaken further. We funded this purchase by selling some short-dated UK gilts. Valuations for long-date gilts remain compelling, while shorter maturities already price in all the Bank of England rate cuts we expect.
“On the equity side, we also bought low-volatility developed market equities funded by the sale of some US equities. This reduces our exposure to the US dollar and dampens possible volatility if uncertainty were to increase again. To further increase our global portfolio diversification, a key pillar of our strategy, we also used the proceeds from our US equity sale to buy some emerging market equities, which are attractively valued.”
Mathieu Savary, Chief European Strategist at BCA Research, said:
“As expected, the Bank of England kept its policy rate at 4.25%. With services inflation easing and labour market momentum fading, the MPC is set to maintain a quarterly pace of rate cuts through year-end. But As expected, the Bank of England kept its policy rate at 4.25%. With services inflation easing and labour market momentum fading, the MPC is set to maintain a quarterly pace of rate cuts through year-end.
“But the UK economy remains fragile, and market pricing understates the risk of a more aggressive easing cycle. That keeps us biased toward lower UK rates, continued outperformance in gilts, and downside for sterling against the euro. That keeps us biased toward lower UK rates, continued outperformance in gilts, and downside for sterling against the euro.“
Esther Watt, Bond Strategist at Evelyn Partners, the wealth manager, said:
“Coming hot on the heels of the Federal Open Market Committee’s decision to leave US interest rates unchanged last night, the Bank of England (BoE) followed suit with a widely expected ‘hold’ in their midday release keeping their target rate at 4.25%. This is a continuation of the one-cut-every-other-meeting approach since the current easing cycle began last August.
“The vote was split 6-3, versus the 7-2 shown by the Bloomberg survey, with Dave Ramsden joining external members Swati Dhingra and Alan Taylor on the dovish side, preferring to reduce the Bank Rate by 25 basis points, to 4.00%. The meeting did not come with updated forecasts, but guidance recognised ‘there remain two-sided risks to inflation’ with the ‘gradual and careful approach to the further withdrawal of monetary restraint’ reiterated. The focus of Bank watchers was if the news flow had been enough to sway members in the dovish direction… and clearly it had.
“Since the May Monetary Policy Report, the Monetary Policy Committee (MPC) has seen two rounds of GDP, inflation, and labour market releases. Overall, the economy has proved to be more resilient than the MPC expected with the latest data coming in with quarter-over-quarter growth at 0.7% (versus 0.6%), inflation slightly hotter at 3.4% (versus 3.3%) but with the labour market softening quicker than expected.
“Unemployment rose to 4.6% in the three months to April (ahead of the BoE’s 2Q25 projection) and HMRC’s latest PAYE Payrolled Employees Monthly change came in at -109k (vs 20k surveyed). Wage momentum, while still elevated with average weekly earnings 3-month/year-over-year at 5.3%, showed progress coming in below the anticipated 5.5%.
“Outside of the domestic data releases, marginal progress has been made on the trade front with the ‘UK-US Economic Prosperity Deal’, the ‘UK-India Trade Deal’ and the new UK-EU deal all small positives for the UK’s growth outlook. However, economic policy uncertainty remains elevated globally with geopolitical developments in the Middle East further muddying the outlook.“
Jonathan Sparks, Chief Investment Officer, UK, Global Private Banking and Premier Wealth, HSBC, said:
“The chance of rate cut today was effectively torpedoed by ‘Awful April’s’ surprisingly high CPI inflation. The BoE would prefer a backdrop of falling inflation where they can lean into the growth risks and argue for a less restrictive bank rate. In August, with the support of updated forecasts, we think the BoE can make a more convincing case for a rate cut. For example, the BoE can point to May’s softer wage data and the continued fall in job vacancies.
“Should our forecast of a cut in August play out, we would expect the BoE to continue the pace of a quarterly cut until they reach a Base Rate of 3%. This is lower than the broader consensus and means that there is room for gilt yields to fall, as we expect investors will adapt to our more dovish view on the path of interest rates.”
Peter Goves, Head of Developed Market Debt Sovereign Research of MFS Investment Management, said:
“There were some small dovish twists to the June BoE meeting. Although rates were left unchanged as expected, the vote split at 6-3 leant dovish at the margin. Guidance remains for rates to be on a gradual and downward path. All things equal, this is supportive for gilt duration medium term. The growth outlook remains somewhat subdued, inflation is falling and wage growth is expected to moderate. We expect the next cut in August.”
Janet Mui, head of market analysis at wealth manager RBC Brewin Dolphin, said:
“The Bank of England holds interest rates at 4.25%, as widely expected, though the vote split of 6-3 is more dovish than previously thought. The Bank of England has a tough call to make and given the various uncertainties, sticking with its guidance of a gradual rate cut is understandable. Markets are pricing in over 80% chance of a rate cut in August and another cut in November.
“The rationale for the rate cut is the clear slowdown in the economy, with job losses gathering pace and GDP contracting the most in 18 months most recently. However, inflation is still high with wages rising over 5% and services inflation being stubborn at 4.7%. On top of that, oil prices are climbing again after fresh tensions in the Middle East.
“If economic weakness intensifies, wage demand is likely to wane, and services inflation could slow. Meanwhile, higher inflation, due to bills and oil prices, may prove more temporary. Therefore, we think there is scope for interest rates to go lower, in which the pace depends on incoming data.”
