It was a decision that was widely tipped following last month’s base rate cut and the announcement of the Consumer Prices Index (CPI) measure of inflation rising by 2.6% in the 12 months to November.
The MPC votes were split in favour of a freeze with a majority of 6-3, but three members preferred a cut from 4.75% to 4.5%.
Minutes from the decision noted the hold was due to the CPI inflation being “slightly higher than expected” since the last meeting in November. The committee also continues to be guided by the “need to squeeze remaining inflationary pressures out of the economy” as it continues to achieve its 2% inflation target on “a timely and lasting basis”.
The committee will also “continue to monitor the impact on growth and inflationary pressures from the measures announced in the Autumn Budget and from geopolitical tensions and trade policy uncertainty”.
Regarding what 2025 holds for the base rate, the committee said a “gradual approach”, as mentioned in November, remains appropriate.
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In terms of GDP forecasts, in November, the Bank of England predicted a growth of 0.3% in GDP, but the forecast for the end of the year noted there will now be 0% growth in Q4.
The minutes read: “The committee now judges that the labour market is broadly in balance. Annual private sector regular average weekly earnings growth picked up quite sharply in the three months to October, but has tended to be more volatile than other wage indicators.”
The knock-on effects of the Autumn Budget also remain under consideration, with the MPC noting there is “uncertainty” around how the measures would affect growth. In particular, the increase in National Insurance contributions (NICs) for employers, which will be introduced in April 2025.
Inflation is ‘a significant burden on households’
Myron Jobson, senior personal finance analyst at Interactive Investor, said: “For Britons, the latest decision to hold interest rates means mortgage rates, credit card rates, and loan rates could remain elevated for longer. However, inflation is also a significant burden on households, and the Bank of England argues that cutting rates too soon risks undoing the progress made in crushing rapid price rises.
“Meanwhile, the best savings rates appear to be on borrowed time. Barring any economic shocks, the only likely direction for interest rates is downward, which means Britons are set to earn even less on their savings in the future.
“The simple message for savers is to act quickly to secure the best deals before they disappear. Those who can afford to lock away their money for at least five years or more should consider investing for the potential of long-term, inflation-beating returns that far outstrip current savings rates.”
Mortgage view
For homeowners, Peter Stimson, head of product at MPowered Mortgages, said the decision offered “some rays of hope” that a cut in the next vote in February could be on the cards.
Stimson said: “Rather than just making the three base rate cuts currently priced into the swap curves, if economic conditions prevail, the bank may be prepared to cut faster and deeper in 2025.
“Despite the current backdrop of rising swap rates, we can expect to see some frenzied competition between mortgage lenders in January. The first weeks of the year are traditionally an important time for lenders, with many slicing into their margins to offer lower interest rates in a bid to win new customers.”
He added: “While the base rate has only been cut twice in 2024, the prospect of three or more reductions in 2025 will embolden lenders to price very competitively at the start of the year as they battle for market share.”
