"Policymakers clearly want to see a sustained downward trend in the underlying figures before opening the door to a more aggressive rate-cutting cycle."
- Ben Nichols, managing director at RAW Capital Partners
The Bank of England's Monetary Policy Committee has voted 8-1 to hold Bank Rate at 5%. One member preferred to reduce Bank Rate by 0.25 percentage points, to 4.75%.
The MPC reduced interest rates last month from 5.25%, the first cut since March 2020.
UK inflation was unchanged at 2.2% in August, in line with market expectations but below the Bank of England's forecast of 2.4%, leaving industry experts divided on the future path of Bank Rate.
Earlier this week, markets priced in a 25% chance of another cut today and a total of 50bps by the end of this year.
After hitting the Bank of England's 2.0% target in May and June, rising inflation - including core inflation which rose to 3.6% - has caused many economists to predict a hold in interest rates for longer, noting that the decision to cut last month was finely balanced at 5-4 in favour.
CPI inflation is expected to increase to around 2.5% towards the end of this year as declines in energy prices last year fall out of the annual comparison.
Many economists now predict that a further rate reduction will come at the Committee's meeting in November.
In its latest meeting, the MPC said a "gradual approach to removing policy restraint remains appropriate".
Ben Nichols, managing director at RAW Capital Partners, commented: “Yesterday’s inflation print all but confirmed today’s decision, though the markets had been expecting it for some time. With core and services inflation both applying pressure in August’s CPI, policymakers clearly want to see a sustained downward trend in the underlying figures before opening the door to a more aggressive rate-cutting cycle.
“Today’s rate hold, therefore, may seem like something of a setback, particularly for property buyers and borrowers, but it should have a consolidating effect that will provide greater market and economic stability in the medium to long term. We can probably expect at least one further rate cut before year-end, which should provide a boost to investor sentiment."
Tony Hall, head of business development at Saffron for Intermediaries, said: “Two months ago, we were debating whether or not 2024 would see the first interest rate cut in four years. While the base rate has stayed the same today, many are predicting two more cuts before the end of year, and activity in the mortgage market is starting to ramp up as a result. Good levels of supply, with sales instructions up 7% in August compared to the 2017-19 average, points to greater levels of activity for the remainder of the year.
“While the October budget will help provide more clarity on longer-term expectations for the market, it is safe to say confidence in the market is increasing, and a busy Autumn period will be supported by falling mortgage rates."
Adam Ruddle, chief investment officer at LV=, commented: “The path to normalising interest rates is more difficult for the Bank of England with UK inflation more persistent, driven by services inflation, which is an important component of the headline inflation rate, rising over the last month from 5.2% to 5.6%.
“We anticipate a further rate cut at the next meeting in November as the current level is overly restrictive, particularly as other central banks, such as the Federal Reserve, have begun their rate cutting cycles, placing pressure on the Pound which will soften exports and weaken the UK economy."
deVere Group CEO, Nigel Green, agrees that Bank Rate should begin to fall further, stating that the Bank of England has made “another mistake” by not accelerating interest rate cuts.
Green added: "The Bank of England’s decision to pause rate cuts is a missed opportunity. We believe they need to adopt an aggressive approach now to further lower borrowing costs, drive growth, and restore confidence in the UK economy.
“Holding interest rates steady may seem like a cautious move, but it fails to address the urgent need to support economic recovery and competitiveness. High borrowing costs continue to burden businesses, particularly in key sectors like manufacturing, retail, and housing, where investment has slowed, and costs remain high.
“The risks of delaying further cuts—such as prolonged stagnation and a slow recovery—far outweigh the benefits of a wait-and-see approach. Interest rate cuts can take months to fully filter through to the real economy, impacting borrowing, investment, and consumer spending.”
