Emeritus Professor Joe Nellis economic adviser at MHA, the accountancy and advisory firm says:

The decision by the Monetary Policy Committee to keep interest rates at 3.75% indicates increasing concern that although yesterday’s figures were flat there remain longer term inflationary fears in an environment where the UK economy struggles to gain any real momentum. Against this backdrop, the Bank of England and members of the MPC have, understandably, chosen to wait for more evidence before changing course.

The MPC was confronted with a tricky balancing act today. Inflation is still above the Bank’s official 2% target and is likely to rise again over the coming months, mainly because of the 13% increase in the energy price cap announced by Ofgem on 27 May. This comes into effect on 1 July and will last until 30 September, pushing up household energy bills. But at the same time, economic growth remains relatively subdued, consumer confidence is fragile, and businesses continue to face pressure from higher operating costs and an uncertain global outlook.

While no surprise, holding interest rates steady buys the Bank of England time. Whether it can continue to take a ‘wait and see’ approach will largely depend on what happens to inflation over the summer and autumn periods.

Until recently, financial markets expected to see cuts in borrowing costs play out in 2026. But that expectation has been knocked back as the inflationary dragon has raised its head again. While an interest rate increase is not the central expectation, it cannot be ruled out if inflation continues to drift up.

For businesses, the MPC vote to hold interest rates unchanged at least provides a degree of stability.  Companies can plan much-needed investment decisions with a slight increase in confidence, even if borrowing costs remain relatively high. Households will welcome the prospect of mortgage rates remaining broadly stable for now, although many continue to feel the effects of higher living costs.