Bank of England Holds Interest Rates at 4.5%

The Monetary Policy Committee (MPC) at the Bank of England has today confirmed that base rates will be held at 4.5% pa following last month’s cut  This is still the lowest rate in 19 months (July 2023).

The MPC voted by a majority of 8 to 1 to keep interest rates as they are.

The MPC statement said: “Based on the committee’s evolving view of the medium-term outlook for inflation, a gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate.”

In short, and as expected, with the fears of US Tariff trade war and increased spending both in the UK and Europe on infrastructure and defence, inflation is going to remain stubborn for some time.

That said, mortgage lenders are still cutting mortgage rates to around of below 4% in attempts to steal market share as affordability is growing given wages have been growing faster than inflation.

Comment

Despite fears of a recession, the Bank is caught between high inflation and recession.  It was expected that rate would be frozen this month, and we do not expect any rate cuts until the summer or Autumn.  We are forecasting two rate cuts this year bit until later this year unless there is a ‘peace’ in Ukraine and/or President Trump relaxes his position on tariffs.

Unemployment will increase, pay rises will slow down and recruitment will fall as employers ‘battered’ by employers’ national insurance contribution increases adjust their employment and pay strategy for 2025 and beyond.

Contributions increase to 15% with the secondary earnings threshold (when employers pay NIC) lowered to just £5,000 pa that start in April 2025.