In a highly anticipated decision, the Bank of England (BoE) has opted to keep its bank rate unchanged. Today’s decision, from the Monetary Policy Committee (MPC), comes as a result of the surprising drop in inflation rate.

The decision to maintain the current bank rate was not unanimous. The MPC voted by a narrow margin of 5-4 to keep the base rate at 5.25%, with BoE governor Andrew Bailey casting the final and decisive vote. Four members voted in favour of a 0.25 percentage point increase to 5.5%.

Andrew Bailey issued a statement regarding the decision taken today.

“Inflation has fallen a lot in recent months, and we think it will continue to do so. That’s welcome news. But there is no room for complacency. We need to be sure inflation returns to normal and we will continue to take the decisions necessary to do just that.”

Why are rates being kept on hold?

Raising rates can discourage spending by increasing the cost of borrowing. However, excessive rate hikes can harm the economy. The BoE observed a faster-than-expected decline in inflation but also noticed some worrisome economic signs.

Unemployment was on the rise, and economic growth was weaker than anticipated. Consequently, they’ve decided to maintain current interest rates for the time being. Nevertheless, they emphasised the potential need to sustain relatively high rates for an extended period to guide inflation back to their target of 2%, which is not expected until 2025. This decision reflects the delicate balance between price control and economic stability.

Inflation surprise

The surprise factor in this decision stems from the Office for National Statistics’ recent inflation data. The inflation rate, which had been on an upward trajectory for months, unexpectedly dipped to 6.7% in August from 6.8% in July. This decline, though modest, is significantly lower than the 7.1% inflation figure that had been predicted.

The BoE has been on a relentless path of raising interest rates, with a total of 14 consecutive rate hikes prior to this decision. These hikes were primarily aimed at curbing inflation, which had been an ongoing concern.

What does this mean for savers?

With relatively high rates expected until 2025, savers can continue to benefit from healthy returns on savings accounts. When the base rate is high, banks across the market tend to increase the interest they pay on savings accounts. This means that you can earn more on your cash.

Simon Merchant, Co-Founder and CEO of Flagstone, urges savers to make the most of this period.

“While today's MPC meeting maintained the base rate, interest rates remain considerably higher than the historic lows we've witnessed in the past. This was a surprise move and shows how economists and other market experts have consistently struggled to forecast inflation and interest rate trends.

“Our platform exists to give customers confidence that the value of their hard-earned savings is being maximised in these uncertain times. Savers should act now to secure attractive rates for their cash.”

Future uncertainty

The BoE's decision to keep the rate unchanged has ignited discussions about the future of interest rates in the UK. The central bank faces the task of balancing inflation control with broader economic stability, and due to the challenging nature of this job, it’s hard to predict what comes next for savers and borrowers.

How you can capitalise on high interest rates

In an era of high interest rates, there’s no better time to embrace a proactive approach to managing your savings.

Our cash deposit platform eliminates the hassle of opening bank accounts and filling out paperwork. With a single application, you can access hundreds of accounts with several banks, enabling swift and easy money transfers. This allows you to chase better rates, making the most of the evolving interest rate landscape.

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This article is not advice. If you would like to receive advice on your savings and investments, consider speaking to a Financial Adviser.