Bank of England holds rates at 4% – what it means for you 

The Bank of England has decided to keep interest rates at 4%. This move was widely expected, as the Bank is trying to balance two challenges: inflation that remains higher than target, and an economy that is struggling to grow. 

Just last month, rates were cut for the third time this year after a very close vote. This time, the decision was more decisive, with a strong majority favouring no change. Inflation is still running at 3.8% – almost double the Bank’s target of 2% – and that was a key reason to pause. 

Why the base rate matters 

The “base rate” is simply the interest rate the Bank of England charges other banks to borrow money. Changes in this rate affect almost everything in the economy, from the cost of mortgages and loans to the returns you get on savings. 

When inflation (the rate at which prices rise) is above target, the Bank may raise rates to slow spending and bring prices under control. 

When inflation is low, the Bank may cut rates to encourage borrowing, investment, and growth. 

At 4%, rates are now high enough to squeeze inflation, but not so high that they tip the economy into recession. It’s a careful balancing act. 

Inflation still stubborn, growth still slow 

Recent figures show inflation at 3.8% in August, almost double the 2% target. At the same time, the economy is barely moving with no growth in July and just 0.2% growth across the previous three months. 

The Bank’s challenge is clear: bring inflation down without damaging growth further. That’s why rates have been kept steady for now. 

What’s been driving inflation? 

After the pandemic, inflation fell back towards target in 2024, which allowed the Bank to cut rates five times in a row. 

But this spring, prices jumped again, mainly due to rising food costs, and inflation has stayed higher ever since. 

The Bank expects inflation to peak at around 4% before easing back again. 

Global factors are also at play. New US trade tariffs, introduced in April, could add further pressure on the UK economy. 

What happens next? 

The Bank of England’s rate-setting committee is due to meet twice more this year, with the next decision on 5 November. Future moves will depend on how quickly inflation shows signs of easing. 

Governor Andrew Bailey has said: “We’re not out of the woods yet, so any future cuts will need to be made gradually and carefully.” This means the large rate reductions we saw earlier in 2025 are unlikely to be repeated soon. 

What this means for you 

For savers, the outlook is challenging. With inflation still running above target, the real value of cash savings risks being eroded over time. Even if rates start to fall again, your money in cash may not keep pace with rising prices. 

For investors, however, this environment provides opportunities. By staying invested, your money has the chance to grow, benefit from compounding, and potentially offset the effects of inflation, helping you preserve and grow wealth over the long term. 

Please note: This guide is for general information only and does not constitute advice. The information is aimed at retail clients only. The value of your investment(s) and the income derived from it, can go down as well as up and you may not get back the full amount you invested. The content of this guide was accurate at the time of writing. While information is considered to be true and correct at the date of publication, changes in circumstances, regulation, and legislation after the time of publication may affect the accuracy of the guide.  

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