"It is only a matter of time before the base rate is increased, with many having expected that to come today."
Economists had been predicting a rise in Bank Rate to 0.25% as inflation continues to rise. Inflation rose to 3.1% in September, with CPI inflation expected to average 4% over the next year.
However the MPC still outlined a path for Bank Rate that rises to around 1% by the end of 2022, believing "it will be necessary over coming months to increase Bank Rate in order to return CPI inflation sustainably to the 2% target".
In its minutes, the MPC said: "There will be occasions when inflation will depart from the target as a result of shocks and disturbances. In the recent unprecedented circumstances, the economy has been subject to very large shocks. Given the lag between changes in monetary policy and their effects on inflation, the Committee, in judging the appropriate policy stance, will as always focus on the medium-term prospects for inflation, including medium-term inflation expectations, rather than factors that are likely to be transient.
"At its recent meetings, the Committee has judged that some modest tightening of monetary policy over the forecast period was likely to be necessary to meet the 2% inflation target sustainably in the medium term. The latest developments, set alongside the Committee’s updated projections, reinforce this view. Nevertheless, near-term uncertainties remain, especially around the outlook for the labour market, and the extent to which domestic cost and price pressures persist into the medium term."
In last week's Budget, Chancellor Rishi Sunak revealed that he had written to the governor of the Bank of England to 'remind them of their commitment to keep inflation low'.
Sunak said: "I've written to the Governor of the Bank of England today to reaffirm their remit to achieve low and stable inflation, and people should be reassured they have a strong track record in doing so."
Luke Bartholomew, senior economist at abrdn, said: “The decision to keep rates on hold today will certainly surprise some investors as the Bank has done little to push back on mounting speculation about an imminent hike. We expect a hike in rates to come through in December, when policy makers will have at least some tentative evidence on how employment has performed after the expiration of furlough. And indeed further rate increases next year. So the message to investors is that rate hikes are coming soon, but not to hang too closely to every speech and interview by rate setters.”
Nathan Emerson, chief executive at Propertymark, commented: “It is only a matter of time before the base rate is increased, with many having expected that to come today.
“When it does, mortgage rates will inevitably increase, but it is important to keep things in perspective, as the cost of borrowing remains low when compared to historic levels.
“Crucially, the market remains in a strong position to contend with the mooted rises, with our latest Housing Market report showing an increase in both the number of average sales and buyers on the books.”
Ed Monk, associate director at Fidelity International, said: “It seems inevitable that the Bank of England will raise rates at some stage but borrowers have been given a reprieve for now. The MPC appears in wait-and-see mode while supply chain issues and higher global energy prices - factors beyond the control of the Bank - push inflation higher.
“A delay in raising rates is a signal of the conundrum facing rate-setters. They will be uncomfortable that inflation is running so far above target, but also understand they have limited options to bring price rises down. Maintaining rates at their current emergency low level underlines that the Bank still views growth as being fragile.
“Households need to ready themselves for higher borrowing costs arriving at some stage. Taken alongside rising inflation of prices for everyday items like fuel and energy, and with higher National Insurance and frozen Income Tax rates on the way, household budgets are being chipped away from multiple directions. The financial cost of a rise in rates to 0.25%, whenever that does arrive, may be limited but the shift in consumer sentiment it causes may be much bigger.”
Hayley Scott from Investec Real Estate added: “This feels like the right decision. The economy is still in recovery mode, and GDP is yet to regain all the lost ground from Covid. Importantly, the full impact of the end of furlough is yet to be seen and, despite the government’s insistence, the reintroduction of Covid restrictions can’t be ruled out.
“However, if the labour market holds up and the recovery does not stall, a first rate rise in the coming months is almost inevitable and will be increasingly necessary. The pressure on developers from build cost and wage inflation is growing all the time, whilst there are few winners from rampant house price inflation.”
