Expert comment: Bank of England holds rates at 4.5% - a safe bet, but for how long?

Well, there it is. As anticipated, the Bank of England has decided to hold the base interest rate at 4.5% in its latest Monetary Policy Committee (MPC) meeting today. No surprises - just another cautious step from a central bank that appears determined to wait and see. However, the fundamental question is: are they waiting too long to act?

From my perspective, this is a classic case of playing it too safe. Inflation has been decreasing, economic growth is sluggish and businesses are in desperate need of support. Yet, here we are, stuck at 4.5% as if the bank is hesitant to take any action. Yes, they want to be sure inflation stays under control, but at what cost? Holding rates this high for too long risks suffocating growth and I believe we are already observing indications of this.

The impact on mortgages, inflation and cost of living

For homeowners, this decision means mortgage rates are likely to remain elevated for longer. Those on variable-rate mortgages will continue to feel the squeeze, while anyone hoping to refinance or get onto the property ladder will have to navigate costly borrowing conditions. It’s a frustrating scenario - especially when wages aren’t keeping pace with inflation.

Speaking of inflation, while it has been cooling, it’s still hovering above the bank’s 2% target. Keeping rates high is meant to keep spending in check, but the knock-on effect is clear: businesses hesitate to invest, consumers tighten their belts and the economy slows. The cost of living remains stubbornly high and many households aren’t feeling the supposed benefits of easing inflation because essentials like food, rent and energy bills remain expensive.

The Trump factor: a global wildcard

Adding another layer of uncertainty is the global economic picture - specifically, US President Donald Trump’s latest economic policies. His administration’s push for higher tariffs and protectionist trade measures could disrupt international markets, drive up inflation and force central banks (including the Bank of England) to rethink their strategy. If global supply chains take a hit or market confidence wavers, the UK could find itself dealing with inflationary pressures that are completely out of its control.

My prediction?

I don’t see the bank holding at 4.5% for much longer. The economy needs a push and with inflation expected to continue easing, I would bet on a rate cut by early summer - perhaps June or August at the latest. It won’t be a dramatic drop, but a trim to 4.25% would be a smart way to give businesses and homeowners some breathing room without risking another surge in prices.

By the end of the year, I predict we will see rates closer to 3.75% - maybe even 3.5% if economic conditions worsen. But knowing the Bank of England’s cautious nature, they’ll probably drag their feet longer than necessary.

What should happen? If I was calling the shots (which, sadly, I am not), I would push for a gradual but decisive approach. Instead of waiting for inflation to be perfectly at 2%, why not start easing now in small, controlled steps? A quarter-point cut today would have sent a positive signal to businesses and homeowners alike.