UK interest rates held at 5.25% by Bank of England

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It's been a busy afternoon since the Bank of England's interest rate announcement, here's a quick reminder of what's happened:

• As expected, the Bank of England decided to keep interest rates at 5.25%, leaving them unchanged for the fifth time in a row
• It means the cost of borrowing remains at its highest level for 16 years
• The Bank's Monetary Policy Committee voted 8-1 in favour of the move - the first time since autumn 2021 that no member of the panel voted to increase rates

• The prime minister's spokesman says that, alongside yesterday's announcement of a drop in inflation, this shows the economy "has turned a corner"

• Governor Andrew Bailey says it is "not yet" the time to cut interest rates, but says "things are moving in the right direction"
• The Bank expects inflation to fall slightly below 2% by the summer.
• However, it warned that conflict in the Middle East and disruption to one of the world's busiest shipping lanes in the Red Sea poses "material risks" to prices surging again

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Let's now turn our attention to Switzerland, where the national bank cut its interest rates for the first time in nine years, by 25 bps - to 1.5%.

The chairman of the Swiss National Bank (SNB), Thomas Jordan, tells reporters the move was made possible because the country's fight against inflation during the past two and a half years was "effective".

Jordan says SNB's decision to cut interest rates now was not due to Switzerland's wish to get ahead of other countries, but because it was "the right time". Unlike in the UK, inflation in Switzerland has been below 2% for some months.

Elsewhere, in Sweden the national bank held its interest rates at 4%. While the Federal Reserve in the US held its rates at 5.25% to 5.5%.

Here is a reminder of interest rate levels over the years.

You can see in the chart that it was lower than 1% for more than a decade but after Covid and the Ukraine war, it sharply increased between 2021 and 2024.

It was kept unchanged for the fifth consecutive time by the Bank of England in today's announcement.

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Mortgage lenders are "incredibly sensitive to market movements" at the moment, according to a specialist mortgage broker.

Polly Gilbert works specifically with first time buyers and those facing affordability issues. She tells BBC Radio 5 Live that there is "a lot of re-pricing" of mortgage deals going on at the moment.

While movements are "quite small" at the moment, and therefore not making a "huge difference to monthly payments", she says "in this environment, every penny counts".

She adds that the country is in a "much better position on mortgage rates than we were six months ago".

The Bank of England should cut interest rates to ensure economic growth is not hampered, according to Carsten Jung, senior economist at the Institute for Public Policy Research (IPPR).

The IPPR is a centre-left think tank which focuses on inequality and the environment

Jung says, with "inflation coming down more quickly than predicted... domestic price pressures are falling quicker than the Bank anticipated".

This, he believes, shows the Bank "tightened the screws too much, which is squeezing much needed future growth".

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While we usually compare the UK to similar economies in Europe or the US, spare a thought for Turkey, where the central bank has raised interest rates to 50%, from 45% in February.

Before the presidential and parliamentary elections last year in May, interest rates were at 8.5%, even though inflation was levels not seen since the 1990s. That unorthodox policy was highly criticised by economists at the time.

The rates have been raised by Turkey’s central bank since then and reached 50% today, in a bid to tackle annual inflation of 67%, according to official figures in March.

President Recep Tayyip Erdogan, who advocated for lower interest rates for many years and sacked a number of Bank governors when they increased them, is facing another challenge in 10 days: Local elections.

The cost-of-living crisis is at the heart of the election campaign, but he managed to secure another five year-term in the presidential palace last year after showering his supporters with massive pay increases and introducing an early retirement programme that cost the government billions of dollars.

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The widely-expected decision means the cost of borrowing remains at the highest level for 16 years.

The Bank has kept interest rates at a high level in a bid to slow the pace consumer prices have been rising at.

But with inflation having fallen to 3.4%, experts have predicted a first rate cut happen this summer.

The UK fell into economic recession at the end of last year when the economy shrank for two consecutive three-month periods, but in its report on Thursday, policymakers suggested the downturn might already be over.

“Supermarkets report growing volumes of sales. Consumers are seeking fewer bargains and seem a little more willing to treat themselves, suggesting confidence is improving,” the report from the Bank said.

The government’s policies in the Spring Budget were like to grow the economy by 0.25% over the “coming years”, the report added.

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Mortgage adviser James Bowers is a potential first time buyer from Belper, Derbyshire.

He has a 15-20% deposit saved for a new property and wants to borrow about £140,000.

He says the level of the interest rate "allows us to know the price range we are looking at”.

Although, he “can’t imagine they will be coming down anytime soon”, he hopes to see mortgages rates stabilise “rather than having to worry each month about whether they are going up or down each month.”

If interest rates were stable it would give him “more time to consider my options” he says.

Mr Bowers points to the quite "considerable difference" between the cost of a mortgage now and pre-pandemic.

He's wants to know how long it's going to be before rates stabilise and when a "new normal" will emerge following the high rates of the past few years.

We're starting to get reaction from economists to the Bank of England's announcement today - and what it could mean for the near future.

The decision to hold rates is "no surprise", says Philip Shaw - chief economist at Investec - who says they "maintain [their] current view" that rate cuts will begin in June.

Fiona Cincotta - market strategist at City Index - says with no members of the Bank of England's committee voting to increase interest rates, "the ship is turning towards that rate cut" and she believes that could come "sooner than we thought".

"May seems off the table" for that to happen, according to Colin Asher - senior economist at Mizuho Bank - while he believes "June is possible, but we still see August as most likely".

Susannah Streeter - head of money and markets at Hargreaves Lansdown - agrees, saying it's "not surprising that caution remains the name of the game", with "wage pressures and higher shipping fees" meaning companies are "pushing up prices".

Looking through the summary of the Bank of England's latest report on interest rates, and things seem to have changed relatively little since the last decision in February.

The committee says that "monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target".

It adds that it will "keep under review for how long bank rate should be maintained at its current level".

Both these key pieces of guidance were also in February's report.

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The theory behind increasing rates to tackle inflation is that by making borrowing more expensive, more people will cut back on spending and that leads to demand for goods falling and price rises easing.

But it's a balancing act as high interest rates can harm the economy as businesses hold off on investing in production and jobs.

The UK fell into economic recession at the end of last year when the economy shrank for two consecutive three-month periods, but with the Bank's report today, policymakers suggested the downturn might already be over.

It said growth was expected to return during the first half of 2024, with business surveys suggesting an "improving outlook for activity".

The health of the UK economy is in the spotlight with the general election set to be called in the coming months and both major political parties pledging to boost growth.

We can bring you some reaction from the prime minister's official spokesman now.

He says: "With inflation dropping to 3.4%, real wages rising, mortgage rates starting to fall, there's clear sign that the economy has turned a corner after the shocks of the last few years."

Asked whether the prime minister has confidence in the governor, he replies: "Completely."

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So along with the document telling us what the Bank's base interest rate is, we've also been handed a separate report which gives detailed insights from the hundreds of businesses the Bank hears from.

When it comes to consumer spending, the Bank says there is "cautious optimism" among its contacts that the volume of sales of goods and services will return to growth this year.

It suggests consumers are seeking out fewer bargains than before and "seem a little more willing to treat themselves".

However, some surveyed have noted people are using buy-now, pay-later credit and that demand for big-ticket items remains subdued.

When it comes to theatres and other entertainment venues, audience numbers are steady, but sales of food and merchandise are "weak". A sign of the times can also be seen in wedding bookings, which are as strong as last year, but more couples are choosing to tie the knot on cheaper mid-week dates.

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The decision on interest rates has already had a small impact on the value of the pound.

Earlier in the day Sterling had fallen against the euro and the dollar, and this drop was extended after the announcement.

£1 is now 0.4% lower at $1.273, and 0.3% down at 1.17 euros.

Not a single member of the Bank of England's Monetary Policy Committee voted to raise interest rates today.

That's the first time this has happened since September 2021 - two and a half years ago.

On that day, all nine committee members voted to keep rates unchanged at 0.1%.

Since then, at every meeting at least one member has voted to increase interest rates - until today.

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Reacting to the Bank's decision to hold interest rates at 5.25%, the Liberal Democrats say: “This is cold comfort for millions of homeowners who still face massive hikes in their mortgage bills".

Lib Dem Treasury spokesperson Sarah Olney says the blame for this lies with former PM Liz Truss.

“Liz Truss's disastrous mini-budget and the Conservative Party's economic vandalism has put intolerable pressure on people's finances. This Conservative government has no good story to tell on the economy," she says.

She adds that Rishi Sunak "needs to call an election".

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High interest rates can affect people in different ways.

Mortgage holders with variable or tracker mortgages, or those who are looking to secure new fixed-rate deals, have higher monthly payments.

First-time home buyers may find they are priced out of the market as lending conditions become tighter.

Charges tend to be higher for some loans and credit cards that don't have fixed interest charges, but people with savings should benefit from higher interest rates and get better returns on their money.

Higher rates could also be good news for those on the cusp of retirement, who might get a better annuity rate.

This determines how much guaranteed income you get, when you swap some or all of your pension pot for a secure income.

That's because providers typically buy government bonds, which will rise in line with higher interest rates.

For the government though, rises in interest rates in recent times means it has to pay more interest on the country's debt.

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We are free from the Bank of England's vault and the news it out - interest rates, as expected have been held again.

Now is the time to analyse what the latest news means for you, here is our economics editor Faisal Islam giving his take on the BBC News Channel.

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Bank of England Governor Andrew Bailey says it is "not yet" the time to cut interest rates.

Bailey says he has seen "further encouraging signs" that inflation is coming down, but adds policymakers have to be sure that it will fall back to its 2% target and "stay there".

"We're not yet at the point where we can cut interest rates, but things are moving in the right direction," Bailey adds.