Bank of England holds base rate at 4.25%: What it means for your savings and investments
The Bank of England has held the base rate at 4.25% as UK inflation remains at 3.4%. This cautious move impacts savers and investors, with real returns still under pressure.
The Bank of England (BoE) has today opted to maintain the base interest rate at 4.25%, pausing its rate-cutting cycle amid persistent inflationary pressures. This decision follows last month’s modest 25 basis point cut and comes as the UK’s annual inflation rate remains unchanged at 3.4%, still well above the BoE’s 2% target.
What is a basis point?
A basis point (often abbreviated as “bp” or “bps”) is a unit of measurement used in finance to describe changes in interest rates, bond yields, and other percentages. One basis point equals 0.01%. So, a 25 basis point cut means the interest rate was reduced by 0.25%.
Why the hold?
Despite signs of economic softening and a cooling labour market, the Monetary Policy Committee (MPC) has taken a cautious stance. The decision reflects concerns over sticky services inflation and elevated wage growth, which continue to pose risks to the inflation outlook. Analysts now expect the next rate cut to potentially come later in the year, contingent on clearer signs of disinflation.
What this means for savers
For savers, today’s decision is a mixed bag:
- Cash savings rates are likely to remain relatively attractive in the short term, especially in fixed-term and notice accounts.
- However, with inflation still outpacing most savings account returns, real returns remain negative—meaning your money could be losing purchasing power over time.
Tip: Consider high-interest savings accounts such as Individual Savings Accounts (ISA), and short-term bonds which may offer higher yields to help keep pace with inflation.
What this means for investors
For investors, the BoE’s decision signals a continued period of monetary caution, which could influence market sentiment:
- Equities often benefit from falling interest rates however interest-sensitive sectors like financials may yield opportunities if rates hold.
- Fixed income markets are likely to remain volatile, depending upon investment term, with yields adjusting to shifting expectations around future rate cuts.
- Sterling may strengthen slightly on the back of the hold, potentially impacting international investments.
Tip: Diversification remains key. A balanced portfolio that includes inflation-linked assets, global equities, and actively managed bond exposure can help navigate this uncertain environment.
Planning ahead
At Schroders Personal Wealth, we believe that staying informed and agile is essential in today’s economic climate. Whether you're saving for retirement, investing for growth, or planning for your family’s future, our advisers are here to help you make confident, informed decisions.
Important information
Fees and charges may apply at SPW.
This article is for information purposes only. It is not intended as investment advice.
The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors might not get back their initial investment.
There is no guarantee by investing money it will keep level or beat inflation, particularly when inflation is high.
Any views expressed are our in-house views as at the time of publishing.
