The Bank of England (BoE) has announced that interest rates will be held at 3.75%, the lowest bank base rate (BBR) since February 2023.

The central bank's latest decision, which had been widely anticipated by economists, comes after inflation remained unchanged at 2.8% in May.

The Monetary Policy Committee (MPC) voted by a majority of seven to two to maintain the BBR at 3.75%. The members who voted against holding favoured raising the rate to 4%.

In its report, the MPC said that while global energy prices have fallen since the last meeting in April following developments in the Middle East, they remain higher than pre-conflict and have "continued to be volatile".

It added that the impact of the energy shock on the UK economy remains uncertain and that while monetary policy cannot influence energy prices, it is being set to ensure any adjustment occurs in a way that achieves the 2% inflation target.

Furthermore, the MPC expects inflation to rise later this year and has therefore judged it appropriate to maintain the BBR at 3.75%.

Co-chief investment officer and partner at Saltus, Charlie Ambler, said the decision "reflects the difficult balancing act" being faced by the BoE.

He added: "The MPC faces a genuine dilemma, with inflation remaining elevated and second-round effects from energy shocks becoming a real concern. The combination justifies the hawkish language and dissent for a hike that emerged in April. Yet growth is weakening, unemployment is drifting higher, and the labour market is softening, so today’s decision to hold reflects the right balance at this point in time, given this uncertainty.

“But monetary policy decisions must also account for wider economic sentiment. The longer the BoE keeps rates restrictive in a weakening growth environment, the more pressure builds across business investment and job creation."

Managing director at The Right Mortgage & Protection Network, Ben Allen, concluded: "For the mortgage market, stability is always preferable to surprises. Encouragingly, we have seen lenders across the market cutting rates in recent weeks as swap rates have eased, providing some welcome relief for borrowers and creating opportunities for advisers to help clients secure more competitive deals.

"There is still no guarantee this trend will continue, particularly given the number of economic and geopolitical risks that remain, but the recent direction of travel has been positive. The hope now is swap rates continue to move lower and borrowers can benefit from a more competitive finance environment in the months ahead.”

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