The Bank of England has kept interest rates at 3.75 per cent, despite mounting pressure to hike rates after an uptick in inflation.
The vote is the final one before next month’s Budget and marks the sixth time in a row that the central bank’s monetary policy committee (MPC) has kept rates on hold.
Most analysts now predict the rise will come in November – 11 months on from when rates last moved, when they were pushed downwards from 4 per cent.
The MPC’s vote was once again 6-3, signalling that several members believe a bump in rates is required to offset the rise in inflation, which has been largely driven by higher energy costs due to the Iran war.
But the wider domestic picture has been tricky for the BoE to navigate this year. While the economy has grown slightly more than expected, unemployment is still hovering at 5 per cent, inflation has pushed up to 3.1 per cent and job vacancies are falling. These factors, as well as slowing wage growth, typically argue the case to send rates in different directions – leaving a tough balancing act.
Many economists are also forecasting the cost-of-living to rise further, with households facing another rise in their energy bills from next month – which could prompt the Bank to raise interest rates in the months ahead.
There continues to be “little evidence” in second-round inflation effects from the rise in energy costs, the BoE noted in its meeting minutes, but that came with a caveat pointing to the likelihood of future hikes: “the risk of such [inflationary] effects, against which [interest rates] policy needs to lean, is greater the longer higher energy prices persist.”
Despite the base rate not moving, a recent spike in two-year gilts and swap rates mean mortgage prices have also risen across most major lenders, with experts continually warning homeowners to secure a new deal early once they are in the final six months of their existing ones.
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Money markets are still pricing in three interest rate hikes, but economists do not presently expect that to translate to more than two actual votes to raise them between now and the end of 2027.
“It’s what’s coming down the line that could shake up people’s finances,” said George Sweeney, personal finance expert at Finder.
“We’ve already seen the mortgage market take a turn, with five major lenders raising rates on the same day this week. This has largely happened because of issues in the bond markets, but the current sentiment from the BoE suggests interest rate hikes are very likely in the near future – with some reports suggesting we could hit at least 4 per cent before the end of the year. This could push mortgage rates even higher.
“Unfortunately, price rises are heating up too, and the latest inflation reading will offer no respite for those who were holding out hope for possible base rate cuts. The interest rate climate isn’t in dire straits just yet, but the data appears to be heading in the wrong direction.”
