The Bank of England has announced it will keep interest rates on hold at 5.25 per cent for the fourth time in a row. Earlier today, the central bank’s Monetary Policy Committee (MPC) confirmed that the UK’s base rate would not be cut from its 15-year-high.
Six members of the committee voted for interest rates to remain unchanged, while two MPC members voted for another hike to rates. Only one member voted for a cut.
Interest rates have been raised 14 times over the last year and a half in an attempt to mitigate the impact of inflation on the economy. While inflation has eased in recent months, the Consumer Price Index (CPI) rate for the 12 months to December 2023 rose to four per cent.
Upon the announcement, Governor Andrew Bailey said: "Some good news over the past few months - inflation has fallen a long way from 10 per cent a year ago to 4 per cent now. Things are moving in the right direction. But we have to be more confident that inflation will fall all the way back to the two per cent target and stay there - and we're not yet at the point where we can lower interest rates."
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The Bank has held interest rates at 5.25 per cent
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This led many economists to predict the Bank of England would keep the base rate at its current level for the time being.
The decision to raise interest rates has hit households in the UK differently. Savers have benefited from the hiked interest to their accounts, while homeowners have been saddled with soaring repayments.
A recent panel of economists, academics, mortgage and savings experts brought together by Finder said the base rate would not come down until at least June 20, 2024.
Some 70 per cent of those polled said they did not expect rates to fall until this date, with 20 per cent predicting the MPC will not announce a rate cut until August.
Luciano Rispoli, a senior lecturer in economics at the University of Surrey, explained: “I think the Bank will want to adopt a ‘wait-and-see’ approach.
“It's true inflation is coming down but, in my view, the MPC wants to see more continuous sustained decreases towards the two per cent target.”
He warned that slashing interest rates at the moment “might undo” the recent progress that has been made in tackling inflation.
George Sweeney, deputy editor at Finder, added: “I don't expect them to make forward-thinking changes like lowering rates until they have hard data (which is backwards-looking) that clearly spells out an easing of inflationary pressure.”
Homeowners have been saddled with rising mortgage repayments thanks to the decision to hike the base rate
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Allan Monks, a UK economist for JP Morgan, noted that it likely the Bank will make a “dovish pivot” which could lead to easing in the near future.
The economist said: “The Bank of England’s updated narrative is likely to be that clear progress is being made on inflation, but that it is too early to declare victory and therefore caution must be exercised when thinking about when and how quickly policy can be normalised.”
Will Hobbs, the head of UK Multi-Asset Wealth at Barclays Private Bank & Wealth Management, argued the UK’s economic outlook is better than what “those in the perma-doom community” suggest.
Mr Hobbs shared: “The sharp falls in inflation are part of this, revealing stronger real wages with every chunk lower. Even after the recent blip in the downtrend in inflation data, the gap between incoming reality and the Bank of England’s November inflation forecasts remains wide.
“All this should provide space for the Bank of England’s updated forecasts to emphasise a bit more growth and less inflation. In a meeting that is widely expected to produce a clear consensus for holding policy rates as they are, the forecast updates may help solidify expectations for rate cuts to begin by early summer.”
