UK interest rate: Bank of England holds interest rate at 5.25% despite welcomed fall in inflation

The Bank of England has announced that the interest rate will remain at 5.25% - despite a surprise drop in inflation.

It means that the interest rate is being held once again at the highest rate for 16 years. It comes after the inflation rate dropped to 3.4% in February, the lowest point in two and a half years.

While inflation dropped, there was much expectation that BoE would keep the interest rate at the same level. However, there is hope that interest rates could drop from summer.

Governor Andrew Bailey said: “In recent weeks we’ve seen further encouraging signs that inflation is coming down. We’ve held rates again today at 5.25% because we need to be sure that inflation will fall back to our 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.”

CEO of My Community Finance, Tobias Gruber, said: “I must admit feeling a bit disheartened by the Bank of England's decision not to cut interest rates, especially when inflation is creeping closer to the 2% target faster than anticipated. The recent findings from Debt Justice paint a stark reality of Britain's financial landscape, with a record-breaking 6.7 million individuals currently grappling with financial difficulty amidst the escalating cost of living crisis. For the 13% of adults who have missed three or more credit or bill payments in the last six months, a rate cut could have served as a crucial lifeline."

Jonathan Bone, Mortgage Lead at Better.co.uk, said: “Initially, forecasts indicated that a base rate cut might not occur until July, however, I’d hope after yesterday's announcement that inflation is nearing the 2% target faster than expected, an interest rate adjustment may come sooner. This would come as a huge relief for the millions of homeowners nearing the end of their fixed-rate deals this year."