"With the CPI ticking up again yesterday and concerns lingering around the longer-term impact of the Autumn Budget on inflation in the UK, a rate cut today was always unlikely."
- Ross Turrell, commercial director at CHL Mortgages
The Bank of England's Monetary Policy Committee has voted 6-3 to hold interest rates at 4.75%.
Three members preferred to reduce Bank Rate by 0.25 percentage points, to 4.5%.
The move was widely expected following this week's higher-than-expected wage growth data and inflation figures showing that UK CPI increased from 2.3% in October to 2.6% in November.
In its latest meeting, the Committee agreed that headline CPI inflation will to continue to rise slightly in the near term, stating that "although household inflation expectations have largely normalised, some indicators have increased recently".
The MPC added that it is monitoring the impact on growth and inflationary pressures from the measures announced in the Autumn Budget, geopolitical tensions and trade policy uncertainty, which "have generated additional uncertainties around the economic outlook".
In its last meeting, the Committee voted 8–1 to reduce Bank Rate from 5% to 4.75% after reducing rates from 5.25% in August - the first cut since March 2020.
Ross Turrell, commercial director at CHL Mortgages, commented: “The Bank of England’s rate cuts have injected much-needed positivity into the mortgage and property markets in recent months. But, with the CPI ticking up again yesterday and concerns lingering around the longer-term impact of the Autumn Budget on inflation in the UK, a rate cut today was always unlikely.
“The news might trigger some negative responses, particularly among property buyers holding out hope for lower mortgage rates. However, Governor Bailey has strongly indicated that the base rate could be cut by 1% across the next 12 months, which will likely result in a significant surge in buyer demand and market activity in the new year."
Ben Nichols, Managing Director at RAW Capital Partners, said: “No early Christmas present, but a cut was largely out of the question given the ongoing inflationary concerns. Fortunately, the outlook for further rate cuts in 2025 is far more promising. Governor Bailey recently suggested that the MPC is preparing to implement up to four reductions to the base rate next year. Given that inflation is unlikely to rise as sharply or for as long as it did two years ago, another rate cut could be on the cards as early as February, which would provide the property market with a welcome shot in the arm."
David Hollingworth, associate director at L&C Mortgages, commented: “Today’s decision to hold is no surprise but borrowers hoping to see more positive movement next year will be buoyed by the three votes for a cut this month. Markets are anticipating that stubborn inflation may hold back the pace of those cuts, which has knocked on into fixed rate pricing.
"I expect mortgage lenders to be quick out of the blocks in January and to continue to price as sharply as possible, but the Bank has been consistent in its tone, suggesting the likely pace of rate cutting will be gradual.
"On a positive note, the market is ending the year with better rates than when it began and that looks likely to be true next year.
"However, borrowers will look at today’s rates with varied perspectives. Those that are approaching the end of a five-year fixed rate below 2% will be bracing themselves for the pain of higher monthly payments.
"On the other hand, those that fixed two years ago in the wake of the mini-budget will be chomping at the bit to take advantage of the lower rates now available."
Rob Morgan, chief investment analyst at Charles Stanley, added: "Previously, Governor Bailey stated that “interest rates are going to come down. I’m optimistic on that front”. This much still holds true, but when and by how much is very much in doubt.
"An unusually broad spectrum of outcomes are in play, presenting a quandary for the BoE. On the one hand big government spending plans and additional costs for businesses could stoke inflationary pressures. On the other, it must be alert to the Budget weighing on confidence and dampening consumer and business activity.
"As things stand there are too few signs of structural inflation problems receding for sizable or rapid cuts to interest rates to be made. This week’s blowout wages numbers and stubborn services inflation highlight the challenges of bottling up the inflation genie for good. Combined with the uncertain Budget impact yet to play out, it’s going to be hard for policymakers to be convinced to cut rates aggressively.
"It remains highly likely the Bank will continue to follow its data dependent path and cut rates in the New Year, perhaps as early as its first meeting in February, but we expect only a gradual withdrawal of more restrictive policy over the course of 2025."
Peter Stimson, Head of Product at MPowered Mortgages, commented:
“The decision was never in doubt, but the manner in which it was reached has raised some eyebrows - and hopes - for 2025.
“The fact that a third of the Monetary Policy Committee voted for an immediate rate cut suggests that several of the Bank’s decision-makers are more concerned by underlying economic issues than the jump in consumer inflation revealed yesterday.
“The surprise surge in wage inflation, rather than the jump in CPI to 2.6% - which had been widely expected - had caused some consternation on the swaps market, which determines mortgage interest rates more directly than the Bank’s base rate decisions.
“But the minutes published alongside today’s decision should provide some rays of hope that the next Base Rate cut may be nearer than the markets are currently forecasting.
“Rather than just making the three base rate cuts currently priced into the swap curves, if economic conditions prevail the Bank may be prepared to cut faster and deeper in 2025
“Despite the current backdrop of rising swap rates, we can expect to see some frenzied competition between mortgage lenders in January. The first weeks of the year are traditionally an important time for lenders, with many slicing into their margins to offer lower interest rates in a bid to win new customers.
“While the Base Rate has only been cut twice in 2024, the prospect of three or more reductions in 2025 will embolden lenders to price very competitively at the start of the year as they battle for market share.”
