Threadneedle Street Breaks Pattern of Cuts as Price Pressures Mount – Expert Warns Inflation Will Stay Above 3% Throughout 2025 Amid ‘Persistent Wage Growth’
The Bank of England has dashed hopes of a summer interest rate cut by holding the base rate at 4.25 per cent as inflation continues to rage well above target – with experts warning of just ONE more cut this entire year.
The decision follows yesterday’s bombshell announcement that inflation stood at 3.4 per cent in May – a staggering 70% above the Bank’s two per cent goal – as rising food costs and geopolitical tensions in the Middle East create fresh headaches for policymakers.
Most economists had predicted Threadneedle Street would keep rates on hold, breaking the recent pattern of cutting rates every other meeting in a blow to millions of mortgage holders desperate for relief.
RATE CUTS STALL
- Interest rates remain at 4.25% after four consecutive cuts
- Rates have fallen from their peak of 5.25% last July
- The cost of borrowing remains elevated for families and businesses
- Savers continue to benefit from higher returns on deposits
INFLATION NIGHTMARE
The inflation crisis shows no sign of abating:
- Current inflation: 3.4% – well above the 2% target
- Expert forecast: Set to remain above 3% throughout 2025
- Key drivers: Rising food costs and Middle East tensions
- Government spending: Adding to inflationary pressures
EXPERT WARNING
Monica George Michail, associate economist for the National Institute of Economic and Social Research (NIESR), delivered a stark warning about the inflation outlook.
She said inflation is forecast to remain above three per cent throughout 2025, citing “persistent wage growth and the inflationary effects from higher Government spending.
Additionally, the current tensions in the Middle East are causing greater economic uncertainty,” she warned, adding that NIESR expects the Bank to hold rates steady and implement “just one further cut this year.
PATTERN BROKEN
The decision breaks the recent trend:
- August 2024: First cut from 5.25% to 5%
- November 2024: Second cut to 4.75%
- February 2025: Third cut to 4.5%
- May 2025: Fourth cut to 4.25%
- June 2025: RATES HELD
MPC DIVIDED
The Bank’s Monetary Policy Committee (MPC) has shown signs of division over the pace of rate cuts:
- In May, five members voted for the cut to 4.25%
- Two wanted a bigger cut to 4%
- Two voted to hold at 4.5%
This split highlights the challenging balancing act facing policymakers as they try to support the economy while battling stubborn inflation.
MORTGAGE MISERY CONTINUES
For homeowners hoping for relief, the news is grim:
- Those on variable rates face continued high monthly payments
- Remortgaging remains expensive compared to pre-crisis levels
- First-time buyers still locked out by high borrowing costs
SAVERS’ SILVER LINING
The only winners are savers, who continue to enjoy:
- Better returns on savings accounts
- More attractive fixed-term deposit rates
- Higher interest on cash ISAs
WHAT THE BANK RATE MEANS
The Bank Rate serves as the key benchmark for:
- Mortgage rates: Higher base rate means more expensive home loans
- Personal loans: Credit cards and loans become costlier
- Savings rates: Banks pay more interest to savers
- Business borrowing: Companies face higher costs for expansion
INFLATION DRIVERS
Key factors pushing inflation higher include:
- Food prices: Continuing to surge at supermarkets
- Energy costs: Volatile due to Middle East tensions
- Wage growth: Running hot as workers demand higher pay
- Government spending: Fiscal policies adding to price pressures
FUTURE RATE PREDICTIONS
Analysts are divided on the outlook:
- NIESR: Just one more cut this year
- Most analysts: Two cuts expected – August and November
- Markets: Pricing in 82% chance of August cut
- End-2025 target: Rates could fall to 3.75%
GLOBAL PRESSURES
The Bank faces a complex international picture:
- US Federal Reserve maintaining higher rates
- European Central Bank cutting more aggressively
- Middle East tensions threatening energy supplies
- Global trade uncertainties adding to volatility
GOVERNMENT SPENDING CONCERNS
Experts point to government fiscal policies as a key inflation driver:
- Higher public spending pumping money into the economy
- Infrastructure projects adding to demand pressures
- Benefit increases feeding through to prices
MIDDLE EAST FACTOR
The escalating tensions in the Middle East are:
- Creating energy price volatility
- Threatening supply chains
- Adding to global economic uncertainty
- Making rate cuts riskier
WHAT HAPPENS NEXT?
The Bank’s next meetings:
- 7 August 2025: Next decision point
- 18 September 2025: Following meeting
- Markets watching closely for any dovish signals
THE BOTTOM LINE
With inflation running at 3.4% – far above the 2% target – and experts warning it will stay elevated throughout 2025, mortgage holders face a long wait for meaningful relief.
The combination of persistent wage growth, government spending, and Middle East tensions means the Bank has little choice but to keep rates higher for longer – crushing hopes of a return to the ultra-low rates that prevailed before the inflation crisis began.
For millions of families struggling with mortgage payments, the message is clear: don’t expect help from the Bank of England anytime soon.
Image credit: Roy Hughes via Wikimedia Commons — Licensed under CC BY‑SA 2.0
