
The Bank of England’s Monetary Policy Committee (MPC) has voted to hold interest rates at 4.75%. The Monetary Policy Committee (MPC) voted 6 to 3 in favour of holding rates flat, with three members preferring to cut rates by 0.25% to 4.5%
Commenting on the decision, Anna Leach, Chief Economist of the Institute of Directors, said “Today’s 6-3 vote by the MPC to leave interest rates unchanged was as expected by markets and analysts, but the underlying message from the MPC is doveish and the majority voting for a hold smaller than expected. Their forward guidance has notably shifted, with marked reference to the weakness in demand, and a notable downgrade to their expectation for Q4 GDP growth from 0.3% to zero. There is little doubt from reading their minutes that they see a link between the Budget and markedly weaker confidence and activity in the private sector.
“Inflationary pressures have now shifted for the coming year, with wage growth and price-setting expected to lend more persistence to inflation. But it’s unclear whether stronger public sector spending will fill the gap left by a weaker private sector. Geo-political developments add further uncertainty to the outlook and markets will remain sensitive to any upward pressure on government borrowing, adding volatility to borrowing costs for businesses and households. As the new government seeks to change the growth trajectory for the UK, 2025 is set to be a tricky year, with a lot hanging on how well it spends the additional money it has allocated itself.”
Suren Thiru, ICAEW Economics Director, said “The bank’s decision to keep interest rates on hold, while expected, will still come as a palpable blow to households battling with burdensome mortgage bills and businesses facing a jump in costs following the autumn budget.
“The split vote decision and the dovish tone of the minutes suggest that a February interest rate cut remains very much in play, if not yet a done deal.
“The Bank of England risks backing itself into a corner over the pace of policy loosening because, with inflation likely to drift higher, the timing of future interest rate cuts could become increasingly complex, especially if stagflation fears become reality.
“Against this backdrop, rate setters are likely to take baby steps in cutting interest rates over the next year, particularly in the face of growing domestic and international inflation risks.”
Neil Rudge, Chief Banking Officer, Commercial, at Shawbrook said “In its final decision of the year, the Bank of England chose to hold the base rate steady in contrast to their counterparts in the Eurozone. This decision may frustrate business leaders, who are seeking positive signals after the challenges posed by October’s Budget and last month’s contraction in the economy.
“Borrowing costs remain tight due to previous hikes still affecting existing loans and economic recovery is projected to be slower than before, but there is some optimism of rate cuts next year and that SMEs could benefit from reduced borrowing costs, giving them the opportunity to accelerate their growth plans. Despite the hurdles, business leaders have consistently shown remarkable resilience and adaptability. They will continue to find practical solutions to the challenges they face.”
Mike Randall, CEO at Simply Asset Finance, said “Holding the base rate may not have been the outcome many businesses had anticipated. However, it does offer a degree of stability, giving businesses the clarity to revisit strategic investment plans while planning ahead for upcoming challenges like rising National Insurance rates and increases in the living wage.
“As we step into the New Year, we now can’t afford to turn our attention away from growth and unlocking economic demand. The Government has made some key promises for SME support and infrastructure investment in 2025 – but we must see bold, decisive action taken if we are to make meaningful change for business. This will mean closer collaboration between the Government, financial providers, and the business community to deliver funding where it is needed most, while creating a clear pathway to sustainable economic growth.”