The Bank of England (BoE) has voted to hold the base rate at 4.75%.
The Monetary Policy Committee (MPC) voted 6 -3 to maintain the base rate at its meeting on 18th December.
This move followed the MPC’s decision to lower the rate to 4.75% in November, marking the first time the rate has fallen below 5.00% since the bank chose to raise interest rates above the 5.00% threshold in June 2023.
The decision aimed to support economic growth amid signs of slowing inflation, which recently eased below the BoE’s target of 2% to 1.7%, down from a peak of 11.1% in October 2022.
Reaction:
Nicholas Mendes, mortgage technical manager and head of marketing at John Charcol:
“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.
“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.
“A few weeks ago, Governor Andrew Bailey highlighted these complexities, stating: ‘The biggest issue now is the response to the National Insurance change; how companies balance the mixture of prices, wages, the level of employment, what is taken on margin, is an important judgement for us.’
“His remarks reflect the ongoing uncertainty surrounding the interplay of fiscal measures and business responses, which are critical factors for the Bank’s future decisions.
“Both the OECD and CBI have warned that inflation will remain stubbornly above the Bank’s 2% target until at least 2026, with projections of 2.7% in 2025 and easing only slightly to 2.5% the following year.
“Rising public spending and borrowing, along with increased consumer demand, are key contributors to these inflationary pressures, particularly in sectors like hospitality and retail.
“Today’s announcement to hold rates steady reflects this cautious sentiment.
“With GDP growth expected to reach up to 1.7% in 2025 before slowing again to 1.3% in 2026, the economic outlook remains fragile.
“Base rate forecasts suggest gradual cuts over the coming years, potentially reaching 3.5% by early 2026, but these adjustments are expected to be incremental rather than swift.
“Further comments from Governor Bailey reinforce the market’s sentiment regarding the pace of rate reductions.
“When questioned about the November economic forecast, which anticipates four 0.25% cuts next year, Bailey confirmed: ‘We always condition what we publish in terms of the projection on market rates, and so as you rightly say, that was effectively the view the market had.’
“Pressed further on whether the MPC would carry out four such cuts under the Bank’s central forecast for 2025, Bailey replied, ‘Yup.'”
Nathan Emerson, CEO of Propertymark:
“With many national and international factors continuing to shape the global economy, the Bank of England is understandably taking a cautious path until they can be confident that they are able to safely reduce interest rates back.
“It has been encouraging to see interest rates reduced across recent months, but the base rate can only be reduced if all factors allow.
“High interest rates can of course affect borrowing for many people, especially those stepping onto the housing ladder, but it’s important there is sensible balance to keep the overall economy secure and workable for all.”
Ben Allkins, head of mortgages and protection at Just Mortgages:
“It’s safe to say today’s decision was widely expected and I think even the most avid supporter for rate cuts would say it’s probably the right call.
“The positive to take is that the path of interest rates in 2025 is still set to move downwards.
“Of course the central bank will have to carefully balance the uptick in inflation with an economy showing signs of stress. That’s without considering the potential of any external shocks too.
“Speaking with our brokers and the lenders we work with, the general consensus for 2025 is positive.
“There’s no doubt that clear challenges will absolutely remain, particularly around affordability.
“At least a hold on the base rate brings some stability which is always well received by the markets and by swap rates.
“This may give lenders some leeway to make movements as they look to build their pipeline heading into the new year.
“Brokers will continue to play a fundamental role in helping clients navigate a challenging and ever-changing market.
“As a result, they need to have a clear presence in their local market, educating clients and highlighting the opportunities that are still available.”
Rob Clifford, chief executive of Stonebridge:
“The Bank of England’s Monetary Policy Committee (MPC) has played Scrooge this Christmas, refusing to deliver the gift of a rate cut for borrowers.
“However, that shouldn’t come as a surprise. While inflation has eased significantly from its peak, its persistent stickiness made a December cut highly unlikely.
“That said, the reasons are understandable. Business confidence is wavering and the economy contracted in October which clearly impacted on this decision today.
“Despite this, we still expect the MPC to act decisively in February, delivering a quarter of a percent cut to kick-start the economy.
“We believe there will be at least two further rate cuts in 2025, taking the benchmark rate to between 3.5% and 4%.
“This typically results in more competitive mortgage pricing and lower monthly repayments for borrowers, bringing much-needed benefits to millions of households across the country.
“We should never forget that we live and breathe this.
“For everyone else grappling with what this means for their own unique personal circumstances, MPC decisions and what they actually mean for mortgage rates can be baffling.
“The value in providing timely reminders to customers that they have a subject matter expert on-hand cannot be overstated.”
Melanie Spencer, sales and growth lead at Target Group:
“A hold was always the expected outcome of this latest meeting, especially given the recent news on inflation.
“While the uncertain outlook for inflation will remain a worry for the Bank of England, the overriding feeling is that we will still see a return to cuts in 2025.
“It will be interesting to see how swap rates react to this stability and whether it provides lenders with the scope to make even small changes to pricing.
“We have seen some movement in recent weeks as swaps continue to stabilise post-Budget and the hope for many is that this trend will continue into Q1, with a potential cut in February’s meeting.
“With the change to stamp duty relief coming at the end of Q1, this is likely to encourage activity in the early part of the year – although with transaction times as they are, it is likely that many will have already missed the boat.
“However, with consumer demand expected to increase as rates and market conditions improve, there’s no question that technology adoption and integration will need to play a key role – whether that’s driving efficiencies in application and decision-making, or bringing product or criteria innovations that help answer the demands of the market.”
Jeremy Leaf, north London estate agent and a former RICS residential chairman:
“The lack of movement in base rate is not surprising given recent increases in inflation and wages as the Bank of England wants to see some stability before taking what it thinks is risks with the economy.
“However, as far as the property market is concerned, even a small cut in base rate would be welcome not just for those on fixed-rate mortgages who are facing considerable increases in their loans when they come to remortgage but also first-time buyers who are the engine of the market, wanting to escape from high rental levels and take advantage of reduction in Stamp Duty before 1st April.
“A reduction in mortgage rates is always helpful as it improves activity, which is good not just for those contemplating moving but for the wider economy.”
Mark Harris, chief executive of mortgage broker SPF Private Clients:
“While it is no surprise that the Bank of England maintained interest rates at 4.75% given the recent rise in inflation, borrowers will still be disappointed.
“The trend in new mortgage pricing is downwards but mortgage rates are likely to continue to yo-yo over the next three months.
“Swaps have been gradually falling for a month but all those falls have been wiped out over the past three days.
“It is only when we start getting regular base rate cuts that the market will react favourably and swap rates will fall.
“Until then swaps will continue to fluctuate as much as we have seen over the past 12 months, which makes it harder for lenders to consistently offer lower mortgage rates.
“Those looking to remortgage in coming months should plan ahead as much as possible, speaking to a whole-of-market broker ideally six to seven months before their current deal ends to reserve a rate.
“Should rates rise by the time you take out your mortgage, you are protected from those increases, but if rates fall, you can ask your broker to review what is available nearer the time.”
Amy Reynolds, head of sales at Richmond estate agency Antony Roberts:
“The Bank of England was widely expected to hold interest rates steady this month.
“While stability in rates is welcome after months of sharp increases, borrowing costs remain high compared to the pre-2022 norm, which continues to challenge affordability for many buyers.
“For the property market, this ‘higher for longer’ rate environment means a slower pace of transactions and a greater emphasis on realistic pricing.”
Article from The Intermediary by Jessica Oconnor
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