Central bank's latest decision comes as no surprise
The Bank of England (BoE) has voted to keep the base interest rate at 4.75%, following a rate cut last month, as it seeks to balance rising inflation with a contracting economy.
Members of the bank’s Monetary Policy Committee (MPC) made the decision amid weak economic indicators. The Office for National Statistics (ONS) on Wednesday reported the annual inflation rate rose to 2.6% in November, up from 2.3% in October. Meanwhile, GDP data showed the economy shrank by 0.1% in October, following a similar contraction in September.
Nicholas Mendes, mortgage technical manager at John Charcol, said the decision to hold rates steady was highly expected.
“The Bank of England’s decision to hold the base rate at 4.75% comes as no surprise, given the challenging economic landscape the MPC is navigating,” Mendes said. “While October’s Budget has provided a short-term boost to the economy, it has also introduced new pressures that are likely to keep inflation elevated for longer than previously anticipated.”
BoE governor Andrew Bailey recently pointed to the complexity of fiscal and business responses impacting inflation. He noted that balancing price adjustments, wages, employment levels, and profit margins remains a critical challenge for the MPC.
Inflation is projected to remain above the bank’s 2% target until at least 2026, according to forecasts by the Organisation for Economic Co-operation and Development (OECD) and the Confederation of British Industry (CBI). Projections suggest inflation could reach 2.7% in 2025 and slightly ease to 2.5% in 2026. Rising public spending, borrowing, and consumer demand — particularly in sectors such as retail and hospitality — are driving these pressures.
Mendes noted that while gradual cuts to the base rate are forecast in 2025, they are likely to be incremental. Forecasts indicate the base rate could fall to 3.5% by early 2026.
Bailey recently reinforced the bank’s cautious approach when discussing the economic outlook. Responding to a November forecast suggesting four rate cuts in 2024, Bailey confirmed this was in line with the market’s view but stressed that conditions would determine the pace of reductions.
For mortgage brokers, today’s rate decision signals continued volatility in mortgage pricing. Mendes emphasised that a sustained decline in mortgage rates in the future will depend on several factors.
“Stable market conditions, inflation consistently below the Bank of England’s 2% target, and global economic factors like energy prices and supply chain stability will all play a role in determining how quickly mortgage rates decline,” Mendes said.
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