A rate cut next week is unlikely, suggests industry expert
If you were hoping for The Bank of England to make a base rate cut next week, don’t count on it, suggests respected industry commentator Nicholas Mendes (pictured). It may not make further rate cuts until the summer and possibly as late as August, he believes.
Mendes, who is mortgage technical manager at London broker John Charcol, anticipates the BOE’s Monetary Policy Committee (MPC) will hold fire when it meets next Thursday, deciding to leave the base rate unchanged – which may disappoint some brokers.
“Inflation remains too high, making a move this month unlikely,” said Mendes. “The latest inflation data reinforces this caution. The Consumer Prices Index (CPI) rose to 3.0% in January, higher than expected and still well above the Bank’s 2% target. This rise, combined with ongoing wage growth pressures, suggests inflation may not be falling as quickly as policymakers had hoped. The Bank has been clear that it wants to see sustained progress before considering rate cuts, and this latest data will only strengthen its case for holding steady.
“Economic growth, however, remains weak. The UK economy grew just 1.4% year-on-year in Q4 2024, narrowly avoiding a deeper downturn. While this could justify a rate cut from a growth perspective, the Bank’s priority remains price stability over stimulus. Lowering rates too soon could risk inflation resurging, something policymakers will want to avoid. For now, the Bank of England is likely to wait and monitor inflation trends before making a move. The market expectation for March is overwhelmingly in favour of a hold, and that seems like the most prudent course of action.”
There’s a growing belief that the Bank of England will start easing policy later in the year, possibly in the summer, it seems. “Markets currently see a 55.6% chance of a rate cut in August, with further reductions expected in late 2025 if inflation continues to decline,” Mendes observed. “The case for cuts will depend on inflation falling sustainably and wage growth slowing further. If CPI drops closer to the 2% target and economic growth remains weak, the Bank will come under increasing pressure to start easing rates to support businesses and consumers.”
With uncertainty remaining, geopolitical risks, energy prices, and supply chain disruptions could keep inflation elevated, forcing the BOE to delay cuts beyond current expectations, Mendes indicated. The MPC will likely take a cautious approach, only cutting rates when they’re confident inflation won’t rebound. “If inflation continues its expected decline, the first-rate cut could happen in August, followed by gradual reductions throughout 2025,” he said.
Read more: Ignorance over later life lending is dangerous – industry warning
What does this mean for borrowers coming to the end of their fixed rate?
If the BOE does indeed decide to hold rates next week, mortgage costs are unlikely to drop significantly in the short term for the 1.8 million homeowners whose fixed-rate mortgage deals are ending, suggests Mendes. “While lenders have already started pricing in future rate cuts, new mortgage rates remain higher than they were during the ultra-low interest rate era,” he noted. “The key concern for many borrowers is affordability. Those who locked in rates at one to two per cent several years ago are now facing remortgage offers of around four to five per cent, which could add hundreds of pounds to their monthly repayments. With no immediate rate cut expected, mortgage holders will need to consider their options carefully.”
Some borrowers may choose to fix their rate now for certainty, while others may opt for a variable or tracker mortgage in the hope that rates fall later in the year, according to Mendes. “There’s also the option of shorter 18 months to two-year fixed deals, allowing borrowers to reassess their options once rates have declined further,” he said.
Whether or not Mendes’ appraisal proves correct, there is not long to wait to find out. The Bank of England will announce its decision at midday next Thursday.
