The Bank of England has decided to keep the base rate at 4.75 per cent in todays Monetary Policy Committee (MPC) meeting.
The decision follows the UK inflation figures yesterday which showed an increase in November for the second month in a row.
Six members of the MPC preferred to keep the base rate at 4.75 per cent, while three voted for a 0.25 percentage point reduction.
Since the MPC’s previous meeting, twelve-month CPI inflation has increased to 2.6 per cent in November from 1.7 per cent in September.
The latest inflation data made an immediate rate cut “highly unlikely”, according to Paul Dales, chief UK economist at Capital Economics.
He said: “There is almost no chance of the Bank of England delivering an early Christmas present with another interest rate cut,” as domestic inflation pressures are stronger than expected.
Inflation has risen above the target in recent months, rising to 2.3 per cent in October and 2.6 per cent in November.
Governor Andrew Bailey said the central bank needs to make sure inflation returns to its two per cent target level on a “sustained basis”.
He said: “We think a gradual approach to future interest rate cuts remains right, but with the heightened uncertainty in the economy we can’t commit to when or by how much we will cut rates in the coming year.”
Nick Saunders, CEO of Webull UK, said: “Inflation ticking up coupled with weak GDP puts the Bank in a familiar quandary. Keeping rates unchanged feels like a wait-and-see decision.
“At the moment it’s unlikely we will see a succession of rate cuts in 2025 unless inflation is firmly and demonstrably under control despite weak GDP. Keeping rates at 4.75 per cent gives room to demonstrate confidence through aggressive cuts should a weakening economy be the greater threat.
“Inflation at 2.6 per cent is not on target, but not too far off. It’s too early to cut now and risk a spike, but the prospect of a cut mid-year in likely.”
Measures in the Budget, namely a planned increase to the rate of employer national insurance and the national living wage, could affect future inflation, the MPC said.
This is because businesses have indicated that they might respond to higher taxes by raising prices, or by laying off existing workers.
Paresh Raja, CEO of Market Financial Solutions, said: “The Bank of England has long urged against lowering interest rates too quickly, so following November’s decision to cut the base rate, it was always highly unlikely that the MPC would do the same today. But that should not be seen as a negative.
“Instead, we have to see the bigger picture and reflect on the progress we have seen across the property and lending markets in 2024”
Speaking on what impact this decision may have on mortgages, Matt Smith, Rightmove’s mortgage expert said: “We don’t expect any reductions in mortgage rates over the next few weeks, but as we progress into 2025, lenders are likely to look at ways to take advantage of increased demand as the busier home-buying season starts.
“As we move towards the end of the Stamp Duty reduction, lenders are also likely to look at reducing rates wherever possible. Next year, three Bank Rate cuts are currently planned rather than the four anticipated just a few weeks ago, highlighting how quickly things can change in the market.
“We predict average mortgage rates could trickle slowly down towards around four per cent next year, though this is dependant on the impact of a wide variety of unpredictable factors, including geo-political tensions and inflation.”
The Bank’s decision comes a day after policymakers in the US reduced interest rates, but signalled they would be slowing the pace of rate cuts going forward after inflation forecasts were revised higher.
The cautious tone and shift in expectations weighed heavily on investor sentiment, with US and European stock markets seeing sharp falls.
The Bank of England’s decision nonetheless followed a split vote, with three members suggesting that a weakening jobs market and global conditions could put downward pressure on wages and prices.
