Interest rate hold offers ‘stability but little sense of relief’ for Lancashire businesses

Today’s decision by the Bank of England to hold interest rates offers north west businesses some welcome stability but will do little to ease the immediate financial pressures facing companies and households in the region.

That’s the view of emeritus professor Joe Nellis, economic adviser at Lancashire accountancy and advisory firm MHA.

While Joe believes holding rates was the right call given the ongoing geopolitical uncertainty, he is also warning of the danger of a 'self-fulfilling' expectation that prices will continue rising taking hold, leading businesses to continue delaying decisions on investment and dampening consumer confidence.

The interest rate has now been held at 3.75 per cent for a fifth time, meaning monthly repayments for homeowners on tracker mortgages will remain unchanged. However, interest rates have been rising in recent weeks for borrowers renewing or getting a first mortgage deal, and for other forms of borrowing.

Joe said: “The Monetary Policy Committee’s vote to leave interest rates unchanged reflects a geopolitical landscape that is simply too volatile for accurate prediction. Inflation expectations are being shaped by events in the Middle East and their impact on energy prices, but the rapidly evolving geopolitical situation makes future price movements difficult to predict. Oil prices fell from the end of May, regained momentum through early July, and now again show signs of cooling.

“So far, inflation has remained more stubborn than predicted, standing at 2.6 per cent in June. Yet the concern is not today’s inflation rate but tomorrow’s. If oil and wholesale gas prices rise again and geopolitical tensions persist, this threatens to push up import costs, while businesses continue to face rising labour and operating expenses. Services inflation also remains stubbornly higher than the Bank would like, suggesting that domestic price pressures have not been fully extinguished.”

Speaking about the potential impact for Lancashire businesses and households, Joe said: “Inflation expectations are key. Once households and businesses begin to believe that prices will continue rising, those expectations can become self-fulfilling through higher wage demands and price increases. Preventing that cycle from taking hold is one of the Bank's top priorities.

“For the new Burnham government, an unchanged base rate provides welcome stability rather than a meaningful economic boost, reassuring investors that the Bank stays firmly bound to its inflation target – valuable confidence at a time when the Treasury and the new Chancellor face tough decisions over taxation, public spending and borrowing. Any perception that inflation is being tolerated would almost certainly push up government borrowing costs, placing additional strain on public sector finances.

“While policymakers at the European Central Bank have already acted by raising interest rates, Eurozone rates started from a much lower base. The Bank of England has rates at an appropriate level right now, but messages from Committee members suggest that if inflation gathers momentum during the closing months of 2026, they will be ready to act and raise interest rates above the current 3.75 per cent.”