Blow to debtors as Bank of England HOLDS rates of interest at 3.75%

Borrowers were dealt a blow today as interest rates were held despite mounting concerns over rising unemployment and a floundering economy.

In its first rate-setting decision of the year, the Bank of England left benchmark borrowing costs at 3.75 per cent.

Bank of England Governor Andrew Bailey

The move – which came as fears over stubbornly high inflation trumped those over subdued growth – is a disappointment for millions of households and businesses hoping for cheaper mortgages and loans.

And it is a setback for Rachel Reeves, who has consistently sought to take credit for interest rate cuts even though they are decided by an independent committee at the Bank of England and not the Treasury.

Critics argue rates would be even lower than they are now – resulting in cheaper mortgages for millions – had the Chancellor not driven up prices by raises taxes alongside inflation-busting increases in the minimum wage and public sector pay.

With unemployment jumping from 4.1 per cent to 5.1 per cent under Labour – and experts warning it is heading for an 11-year high of 5.5 per cent this year – pressure is mounting on the Bank to press ahead with rate cuts.

The economy has barely grown since the summer, fuelling calls for lower borrowing costs to boost demand.

But inflation is the highest in the G7 at 3.4 per cent – well above the Bank’s 2 per cent target – giving it limited scope to move.

Shadow chancellor Sir Mel Stride said: ‘Interest rates are staying higher for longer because inflation is rising as a direct result of Labour’s choices.

‘The decisions to hike taxes and increase borrowing to fund more welfare has flatlined growth and pushed up unemployment and inflation. Whilst the economy weakens, the Prime Minister and his closest aides are distracted by their own political survival creating more uncertainty and confusion for British business.

‘Only the Conservatives have a leader with a backbone, the clear plans and the team to deliver a stronger economy and get Britain working again.’

Melanie Baker, senior economist at Royal London Asset Management, she does not think the Bank is ‘quite done cutting rates this year, but we may have to wait a while’ before the next move.

Rates have been cut six times since August 2024 – from 5.25 per cent to 3.75 per cent.

Joshua Elash, director of specialist lender MT Finance, said: ‘While further cuts are expected later this year, it is not surprising that bank rate has been held at 3.75 per cent this time around.

‘The news that UK inflation rose in the 12 months to December 2025 effectively shut down the possibility of a drop in February.

‘There is still an appetite to lend though, and we are hopeful that in the absence of any rate increases, borrowers will continue to transact.’