Interest Rates hold at 4.25% – what’s next for inflation, savings and mortgages?

With the Bank of England voting to hold interest rates at 4.25%, many business owners, investors and savers are wondering what this means for their financial plans. While the decision might feel like a pause, it doesn’t mean we’re standing still. Let’s unpack what’s behind the decision and what could lie ahead for inflation, investments, savings and borrowing.

Why have interest rates been held?

After a series of hikes aimed at bringing inflation back under control, today’s decision suggests the Bank of England sees signs of progress. Inflation has been on a slow but steady decline, helped along by falling energy prices and more stable food costs. But it’s not job done yet. Core inflation, which strips out volatile items like energy and food, remains higher than the Bank would like.

By keeping the rate at 4.25%, the Bank is walking a tightrope, trying to cool inflation without choking off growth or tipping the UK into recession.

What does it mean for inflation?

The fact that rates haven’t been raised again could mean the Bank thinks inflation will continue to fall without further intervention. That said, progress is expected to be gradual. If inflation starts creeping back up, or proves more stubborn than expected, another rate rise later in the year isn’t off the table.

For business owners and investors, this means keeping an eye on price pressures, particularly wages and imported goods, over the coming months.

What does it mean for savers?

While the base rate is still at a relatively high level, we’re already seeing signs that savings rates might have peaked. Banks and building societies tend to factor in expectations about future interest rate movements. With today’s decision and growing speculation that we’ve reached the top of the rate cycle, some fixed-term savings deals are starting to edge down.

If you’ve been holding off on locking in a deal, now may be the time to act, especially for one- to two-year fixed-rate accounts. Just make sure the rate suits your goals and you’re happy tying up funds for the term.

What does it mean for investors?

For investors, the news reinforces the importance of taking a long-term view. Markets have largely priced in a peak or pause in UK rates, so this decision wasn’t a huge surprise. But the bigger picture, inflation slowing, growth uncertain, is still shaping expectations.

If inflation continues to fall, we could see improved sentiment in equity markets, particularly in interest-rate-sensitive sectors like real estate and tech. But volatility is likely to stick around, and global events will continue to have an impact.

Staying diversified and aligned with your goals is key. Now’s a good time to review your investment strategy, especially if inflation, interest rates or geopolitical risks have shifted your risk tolerance or time horizon.

What does it mean for mortgages?

Mortgage holders, particularly those on variable rates or coming off a fixed deal, may breathe a small sigh of relief. With the base rate holding steady, tracker mortgages won’t see an immediate change, and we might see more competitive fixed-rate deals being released.

However, average mortgage rates remain significantly higher than during the ultra-low interest rate years. For businesses and individuals alike, that means carefully budgeting for repayments and looking at whether overpayments (where possible) make financial sense.

If you’re buying property or refinancing soon, it’s worth shopping around or speaking to a broker, especially while there’s a bit of competition between lenders.

What should business owners be doing now?

If you run a business, especially one with debt, variable costs or cash in the bank, this decision should prompt a few practical questions:

• Are we making the most of cash reserves or leaving them in low-interest accounts?
• Are our forecasts factoring in current borrowing costs and possible rate changes?
• Do we need to revisit pricing or supplier contracts to stay ahead of inflation?

This is also a good time to review your business’s investment plans. With rates stabilising, you may find opportunities to invest in growth but timing and cash flow will be key.

Final thoughts

Holding the interest rate at 4.25% doesn’t mean the economic story has paused. It’s a signal that we’re entering a new chapter, one where decisions will be more finely balanced, and the pace of change may be slower.

Whether you’re managing business cash, refinancing a loan or reviewing your personal investments, a proactive approach will serve you well.

If you’d like help reviewing your financial strategy in light of this decision, our team is here to talk through your options.