The Bank of England's Monetary Policy Committee has voted 6-3 to hold Bank Rate at 3.75%, the sixth consecutive hold. Three members preferred to increase interest rates to 4%.
The latest meeting was held against a backdrop of renewed inflationary pressure, with CPI inflation rising to 3.1% in August, up from 2.9% in July.
As a result, although rates have been held this week, markets have priced in a rise to 4% later this year and two further increases in 2027.
The Committee noted that inflation is "likely to rise further over coming quarters".
It agreed there has been "little evidence so far" of material second-round effects in price and wage-setting, but added that the risk of such effects, against which policy needs to lean, "is greater the longer higher energy prices persist or are more volatile".
Richard Carter, head of fixed interest research at Quilter Cheviot, commented: "The Bank of England is officially the last one standing of the central bank triumvirate, choosing to continue to hold interest rates while everyone else raises them. Last night the Federal Reserve said inflation had been too high for too long and would do what is in its power to bring it down. The Bank of England, by contrast, appears comfortable to look past spiking inflation and keep rates where they are, for now.
"There are signs that suggest this might be a prudent approach at this juncture. Core inflation remained steady earlier this week, while employment in the UK is still shaky. With much of the current spike in inflation energy based, due to the Middle East, the Bank of England has very little control over the path for overall inflation, so a rise now could cause more economic pain at a time when eyes are on Budget speculation.
"That said, markets still expect the BoE to raise rates at least once this year and a few more times into next. There is an argument that it could end up being too slow to respond to inflation should these energy price rises seep into other parts of the economy and become entrenched.
"But monetary policy conditions remain tight, with a quantitative tightening policy continuing to be pursued by the BoE. The BoE clearly believes this is enough for now not to warrant an insurance hike, but the longer inflation remains above target and the closer it gets towards 4%, the more likely subsequent rate hikes could be brought forward."
Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “With the US Federal Reserve and European Central Bank both raising their benchmark rates, the pressure was on Governor Andrew Bailey and the Monetary Policy Committee to follow suit, but they resisted. Prevailing caution feels the correct response for now, with a steady hand on the tiller rather than a knee-jerk reaction to raising rates, which is vital for overall market stability and confidence.
“However, the markets are pricing in up to four interest rate rises. Inflationary concerns are growing with the prospect of higher energy prices to come, and concerns for the labour market and wider economy persist.
“The number of Committee members who are leaning towards a rate increase remains consistent with the 6-3 voting split at the July meeting. Once again, three members favour a quarter-point increase to 4%.
“Despite the rate hold, borrowers still have to contend with an upwards trajectory in mortgage pricing, with several big lenders increasing rates on their two and five-year fixes. Mortgages are growing more expensive and affordability concerns remain, although swap rates have eased today after rising in recent days."
Jonathan Samuels, CEO of Octane Capital, commented: “Inflation has moved further away from target, rising to 3.1% in August, and with higher energy and fuel costs continuing to feed into the wider economy, the Bank is understandably reluctant to take unnecessary risks with monetary policy.
"A cut would have been preferable for borrowers, but a hold at least avoids adding further pressure in the immediate term. The bigger question now is how persistent these inflationary pressures prove to be, because that will ultimately determine the direction of swap rates and, in turn, mortgage pricing over the coming months.”
Ben Nichols, CEO of RAW Capital Partners, added: “Interest rate uncertainty has spiked in recent weeks. The re-escalation of conflict in the Middle East, increasing energy prices, inflation fears, volatility in the bond market and sharp shifts in swap rates created a very turbulent backdrop to today's Bank of England meeting, and the decision to hold the base rate was far from certain.
“Brokers and borrowers will be relieved, for now at least; there remains a fair chance that the base rate will rise back to 4% by the end of the year. In the meantime, all eyes will start to turn to the Autumn Budget on 28th October and, more specifically, how the Chancellor's fiscal policies could impact the mortgage and property markets. Alongside the ongoing geopolitical and macroeconomic uncertainty, the measures announced in the Budget will likely play a role in shaping the Bank of England’s outlook for inflation and, ultimately, its next interest rate decision on 5th November. Important weeks lie ahead.”
