The Bank of England has announced its widely predicted decision to hold the base interest rate at 4.75%, following its Monetary Policy Committee (MPC) meeting today.
There will be no interest rate cuts in any Christmas stockings this year as the MPC voted 6 to 3 in favour of sticking at the current rates.
This decision comes amid rising inflation, which hit 2.6% in November, exceeding the Bank’s 2% target for the second consecutive month. The Bank adjusts interest rates to manage inflation by influencing borrowing and spending. Higher rates make borrowing more expensive, encouraging saving and reducing demand, which can help slow price increases. However, this is a delicate balance, as higher borrowing costs can negatively impact businesses, jobs, and investment.
The MPC cut rates in November from 5% to 4.75%, marking the second reduction in 2024. However, rising prices and accelerating wage growth suggest that the Bank may need to maintain current rates for longer to manage inflation effectively.
Below, experts are sharing their insights on what this decision means for the economy, financial markets, advisers and their clients. Stay up to date to guide your clients effectively through these evolving conditions:
Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group said: “The Bank of England has decided against giving us a Christmas surprise, holding interest rates at 4.75% in the context of rising inflation and wage growth. This will come as a mixed signal for savers – on the one hand, rates are still significantly higher than we became accustomed to in the 2010’s and into the pandemic years, putting pressure on household budgets and adding further complexity to the trade-off between managing short term expenses and saving for the future. Our recent research found that 48% of Millennials, a group likely exposed to mortgage costs, say that higher interest rates have made it harder for them to save for retirement.
“Conversely, people with cash-based savings will welcome a continued opportunity to benefit from decent returns, if they shop around and make sure they’re getting the best deal. For those with a greater appetite for risk, investment products like stocks and shares ISA’s have increased potential to outpace inflation, but the value can of course go down as well as up. If you’re able to take a longer-term view, pensions can benefit from compound investment growth over the years, as well as tax efficiency and offer a strong real return at retirement.”
Patrick O’Donnell, Senior Investment Strategist, Omnis Investments said: “The MPC decided to leave interest rates unchanged today as widely expected and priced by markets. They are in a tricky position because prices pressures are still prevalent, but offsetting this, activity has been weaker in recent months. As a result, we expect gradual cuts in 2025 until we get further clarity on either of those two factors. There is currently very little priced by markets currently with ~50bps cuts by the end of 2025. Equity and fixed income markets have been under pressure following on from the hawkish FOMC meeting yesterday evening. This decision won’t be responsible for turning that trend around.”
Jonny Black, Chief Commercial & Strategy Officer at abrdn adviser, said: “Predictably, the Bank of England has held interest rates at 4.75% in its final announcement of 2024. However, what lies ahead is what matters and many are already looking to 2025 after Andrew Bailey confirmed more cuts are on the cards.
“Exactly what this will look like will depend on inflation and the performance of the economy as we head into the New Year but, for now, it’s evident that a steady decline could be seen soon.
“As ever, interest rates decide the fate of many homeowners looking at remortgaging and can impact the decision-making of those sitting on cash savings too. For those planning for the year ahead – whether that be large milestone moments like buying or moving home, or re-evaluating savings and investments – advisers can help navigate finances through the lens of the wider economic landscape. They provide clarity and can help clients understand decisions, ensuring financial strategies remain robust against any twists and turns ahead.”
Ed Monk, associate director at Fidelity International, comments: “The decision to hold rates today underlines that the battle to bring inflation under control is still not won. The outlook for rates has changed meaningfully over the past few weeks with markets pricing in roughly one fewer rate cuts over the next 12 months than had been the case a month ago. Inflation has proved more difficult to shift, with the official rate creeping back to 2.6% and ending the year higher than the Bank had been forecasting. Further increases are expected in the first half of 2025.
“Meanwhile, growth is running out of steam with the economy unexpectedly shrinking in October. That’s a horrible mix for policymakers – both at the Bank and in Downing Street, where Rachel Reeves has pinned her plans on a recovery to widen the tax base next year and help pay for the Government’s huge spending injection. Interest rates staying higher for longer will make that harder, as well as increasing the cost for the Treasury to borrow money.
“For investors, the next few months could prove choppy as further updates on rates and inflation come through. Hawkish words from the Fed were enough to deal a nasty blow to US shares this week. If volatility arrives it will pay to focus on your long-term investing goals, in the knowledge that the downs are as much part of investing as the ups. Especially after such a long period of uninterrupted gains for shares.”
Melanie Spencer, sales and growth lead at Target Group, said: “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.”
Joe Pepper, UK Chief Executive Office at PEXA, said: “Following a tough Autumn Budget, yesterday’s rise in inflation solidified the Bank of England’s decision to hold interest rates. Although unsurprising, another pause in the slow road to economic recovery will surely be unwelcomed by borrowers hoping for further reprieve in their borrowing costs.
“We could well now see remortgage activity stagnate until the end of January – activity is usually suppressed over the Christmas period anyway, and with no hope of lower rates, borrowers will wait it out until their products expire. This combined with the rush for buyers to get transactions over the line before the Stamp Duty returns to ‘normal’ will unleash colossal pressure on conveyancers.
They work as quickly as possible, but do not have adequate back-end infrastructure to drive the level of efficiency needed to deal with heightened demand. Tackling this is of critical importance if we are going to actually stimulate the housing market in the long-term as Labour indicates is a top priority.”
Richard Pike, chief sales and marketing officer at Phoebus, said: “No surprises on today’s Base Rate decision. November’s inflation figure was higher again, as anticipated, and the Bank of England’s characteristically cautious approach was never going to allow a rate drop before the New Year.
“Consumers will take heed of the general “rates coming down” rhetoric as we move into the New Year, and I think this will positively affect gross mortgage lending figures in 2025. Lenders will be working on more efficient front-end and servicing processes so they can better manage their customers and maximise profits and margins in this constantly evolving economic picture.”
Rachel Winter, Partner at Killik & Co, said: “Investors and consumers in the UK will be disappointed that the Monetary Policy Committee has not given them a Christmas gift of a final rate cut in their last decision of 2024. The Autumn Budget has proved inflationary, and this means that interest rates will likely need to remain at higher levels to keep this inflation in check.
“The last few months have seen a number of dramatic events on the world stage which will be on investors’ minds, from the re-election of Trump in the States to a surprise declaration of martial law in South Korea, all of which serve as potent reminders of the importance of having a diversified portfolio that can weather any market shocks. As we move into 2025, now is as good a time as any to reflect on the key fundamentals of successfully investing to build wealth. A good New Year’s resolution would be to invest little and often into a diverse range of asset classes and sectors. Speaking to a financial adviser would be a good idea for those who are interested in forming a comprehensive strategy that is tailored to their specific goals.”
Susannah Streeter head of money and markets, Hargreaves Lansdown: “There’s a chill spreading just before Christmas, with interest rate cuts on ice, and cold water being thrown on hopes for a rapid reduction in rates next year. The decision to keep rates on hold had been widely predicted, given that inflation has veered further away from target, but it did little to calm the jittery sentiment on the markets. The FTSE 100 stayed deep in the red, while the pound started to slide again against the dollar, trading at $1.26.
“The door is still open to cuts however, as this was not a unanimous decision, with three members of the committee voting for another 0.25% rate cut. However, they are expected to be fewer and far between next year, with the markets pricing in just two interest rate cuts.
“The Bank of England is ringing in the same discordant notes of caution as the Federal Reserve. The Fed’s guidance yesterday of just two further interest rate cuts next year sparked nervousness and a wave of sell-offs, and the Bank’s decision has done little to provide much cheer. We are seeing tighter scrooge like policy returning from central banks, who remain cautious about inflationary risks ahead – fresh tariffs from Trump are looming and in the UK the effects of the Budget changes on prices still hard to calculate. Nevertheless, with the UK economy contracting, and inflation still more likely than not to head back down towards target next year, we’re still on the rate-cutting track but the inclement economic weather means we are on go-slow. This could be good news for savers and those looking for an annuity, but bad news for mortgage borrowers.”
Anais Caldwell-Jones, Principal in LCP’s investment team, commented: “The pick-up in wage growth reported by the ONS on Tuesday made the already slim possibility of a rate cut slimmer still. The rise in the consumer price index for November to 2.6% announced on Wednesday killed it off. Services-driven inflation remains a particular concern.”
“Given what appears to be persistent domestic pricing pressures, and the potentially globally inflationary impact of at least some of US President-elect Donald Trump’s proposed policy measures, those hoping for a series of rapid UK rate cuts in 2025 may be disappointed.”
Jonny Black, Chief Commercial & Strategy Officer at abrdn adviser, said: “Predictably, the Bank of England has held interest rates at 4.75% in its final announcement of 2024. However, what lies ahead is what matters and many are already looking to 2025 after Andrew Bailey confirmed more cuts are on the cards.
“Exactly what this will look like will depend on inflation and the performance of the economy as we head into the New Year but, for now, it’s evident that a steady decline could be seen soon.
“As ever, interest rates decide the fate of many homeowners looking at remortgaging and can impact the decision-making of those sitting on cash savings too. For those planning for the year ahead – whether that be large milestone moments like buying or moving home, or re-evaluating savings and investments – advisers can help navigate finances through the lens of the wider economic landscape. They provide clarity and can help clients understand decisions, ensuring financial strategies remain robust against any twists and turns ahead.”
Lindsay James, investment strategist at Quilter Investors said: “A hold on interest rates had long been priced in by the market, so the Bank of England’s confirmation of this decision comes as no real surprise. Nonetheless, it bucks the trend set by its US and European counterparts, opting to hold while the others forged ahead with further cuts.
“The UK economy appears to be slipping into stall speed, which could have been enough to prompt a rate cut if other issues were less persistent. However, the Bank had repeatedly warned that inflation might rise towards the end of 2024 before falling more sustainably next year, and yesterday’s CPI figures provided further evidence of this, rising to 2.6% in the 12 months to November.
“The recent focus of the monetary policy committee has been on services inflation, which at 5% remains a real challenge. Their concerns have centred on persistent wage inflation combined with weak productivity, but higher National Insurance costs for employers could be expected to dampen wage growth somewhat. However, BoE survey responses suggest many firms may also respond with cuts to headcounts and higher prices, which could be a more inflationary result than simply suppressing wages.
“The labour market has been cooling, albeit only gradually. Payrolled employee numbers changed little in 2024, unemployment has risen only marginally, and wage growth is still rising. As a result, expectations for interest rate cuts are low for next year, but there is scope for more should further signs of easing materialise.
“Markets are currently pricing in around two 0.25% interest rate cuts in 2025, which is a considerably more cautious outlook than that of the European Central Bank and the Federal Reserve. Policymakers in the UK will face a tricky balancing act of maintaining price stability without leaving monetary policy too tight, but we are likely to see the pressure piled on for the Bank to act sooner rather than later.”
