Bank of England keeps rates on hold at 4% – business industry reaction

The Bank of England has maintained interest rates at 4% following a close vote by the Monetary Policy Committee (MPC). The rate-setting Monetary Policy Committee voted in a 5-4 split in favour of holding the rate, with four members preferring to cut rates by 0.25% to 3.75%.

Commenting on the Bank of England’s decision to hold interest rates, Neil Rudge, Chief Banking Officer, Commercial, at Shawbrook said “Holding rates steady for a third straight month will disappoint UK SMEs, many of whom had expected a shift towards easing after inflation fell faster than forecast. With borrowing costs still at their highest level in over a decade, confidence remains fragile and investment cautious.

“But there is funding available for businesses that want to keep growing. Specialist lenders continue to have both the appetite and the expertise to structure finance around the needs of ambitious firms. The challenge now is restoring the confidence to use it.

“The Budget must send a clear signal that business investment and access to finance are firmly back on the government’s agenda. It presents an opportunity to give UK SMEs real support. Measures that could help include reforms to business rates, steps to improve access to finance, easing regulatory and reporting burdens, and incentives to encourage investment such as enhancedcapital allowances.”

Mike Randall, CEO, Simply Asset Finance said “Businesses would have liked to see a rate cut this month given the year they’ve experienced. And while this was always going to be a tight decision, expectations remain strong for a reduction next month.

“Stability offers some reassurance, but SMEs need to see the cost burden fall further and conditions to genuinely improve. Right now, optimism is fragile, and with just weeks until the Chancellor delivers her Budget, the opportunity to strengthen that confidence or weaken it lies in the balance. The right measures could unlock growth and reinforce ambition across the UK; the wrong ones risk stalling momentum at a critical moment. Business leaders now need action, not just reassurance, to ensure this optimism turns into real progress.”

Julian Jessop, Economics Fellow at the free market think tank the Institute of Economic Affairs, said “The Bank of England’s decision to leave interest rates on hold today reflects badly on Government policy choices which have fuelled inflation.

“Fortunately, borrowers may not have to wait much longer. Andrew Bailey appears to have been the swing voter this week. The Governor sided with the majority in keeping rates on hold, but was the least hawkish, and it may not take much more evidence to prompt him to switch. A December rate cut is therefore still very much in play.

“UK interest rates have still been cut five times since last year’s General Election, but this has been part of a global trend. The European Central Bank has cut rates eight times since June 2024.

“The MPC had settled into a pattern of cutting rates every three months alongside each new set of economic forecasts. However, the acceleration in inflation since last October’s Budget has now broken this cycle.

“Most independent observers agree that Government policies have added to inflation, mainly via the pass-through of higher labour costs.

“It is widely accepted that the increases in employers’ National Insurance contributions and in regulated prices, including energy bills and minimum wages, have kept UK inflation and interest rates higher for longer.

“Nonetheless, this month’s Budget offers an opportunity to reverse this trend. A credible plan to repair the public finances and improve productivity would reduce the Government’s cost of borrowing. It would also make it easier for the Bank of England to cut interest rates further, without crashing the economy.”

George Lagarias, Chief Economist at Forvis Mazars said “Neither the split decision nor the hold on rates comes as a big surprise. Economic output and wage growth are slowing fast enough to justify lower rates. Markets believe a rate to be imminent, possibly after the announcement of a budget, and it is just a question whether it is a December or a February affair. The central bank probably just wants to see a bit more helpful data before they push the button.”

Anna Leach, Chief Economist at the Institute of Directors, said “The MPC voted once again to hold Bank Rate at 4%, but with a narrower 5-4 split this time, reflecting the tight balance of risks. For the doves, stronger disinflationary pressures and downside risks dominated, amidst concerns over the outlook for consumption. Meanwhile the hawks are worried about inflation persistence and second-round effects. Although the Governor voted for a hold this time, he made it clear that this was mainly to await more evidence of disinflation.

“It’s odds-on for a rate cut in December, provided inflation continues to track down – and the Bank think it will, projecting CPI at 3.6% for October. Even a deftly designed Budget will unleash a sizeable fiscal consolidation, pushing down further on demand and price pressures. A pre-Christmas rate cut would be welcome news for businesses and consumers.”

Alpesh Paleja, Deputy Chief Economist, CBI said: “Today’s decision marks the first pause in quarterly rate cuts since the MPC began easing policy in August 2024. The hold is understandable: the Committee wants to wait out the Autumn peak in inflation and see if households’ inflation expectations ease from still-high levels. The Bank will also be waiting for clarity from the Autumn Budget, its impact on the growth and inflation outlook, and how pay settlements for next year are shaping up.

“Beyond today, though, the case for further cuts is strengthening. Economic momentum remains sluggish, as reflected in the CBI’s business surveys, and the MPC seem to be more reassured about the risks from greater inflation persistence. As a result, a couple more rate cuts in the coming months look likely.”

Nick Henshaw, Head of Intermediaries Distribution at Wesleyan, said: “With rates holding steady, many clients will be weighing up whether cash remains the best place for their money, particularly if they’re seeing the real value of savings eroded by inflation. For advisers, this creates a prime moment to explore how diversified investments can offer stronger long-term outcomes than simply staying in cash. 

“And with the Autumn Budget approaching, some clients may be holding back from long-term decisions altogether, preferring to wait and see how any tax or allowance changes could affect their wider finances. 

“While some clients may still be nervous about market volatility, tools like Wesleyan’s With Profits Fund can help smooth out the ups and downs, providing a more stable journey to long-term growth. 

“In this period of relative stability, proactive conversations and clear, tailored advice are key. Advisers can help clients make confident, informed decisions about where to invest next, ensuring their money continues to work effectively for them.” 

Suren Thiru, ICAEW Economics Director, said “Keeping interest rates unchanged will feel like a particularly tough break for those consumers battling against high mortgage costs and firms fearing more tax hikes in the Budget.

“This latest decision confirms that the pace of policy loosening remains painstakingly slow with rate-setters likely wanting to see more evidence of weakening inflation and the outcome of the Budget before sanctioning another rate cut.

“The razor-thin vote in favour of this outcome suggests that worries among rate-setters over an ailing economy remain substantial, keeping the door open for a December interest rate cut, despite concerns over elevated inflation.

“The Budget is a notable obstacle to a December rate cut as while higher taxes can be deflationary, the upward pressure from any rise in business costs may mean that inflation is more stubborn than the Bank of England is forecasting.”