UK base rate on hold; experts respond

Bank of England now under mounting pressure to cut rates in December

September’s lower-than-expected inflation, softer wage growth, and clear signs of slowing activity in the third quarter have strengthened the case for the Bank of England to move towards cutting interest rates in December, says Nigel Green, the CEO of deVere Group, one of the world’s largest independent financial advisory organisations.

The call comes after the Bank of England on Thursday voted narrowly to hold rates at 4%, with a split 5-4 decision exposing growing divisions within the Monetary Policy Committee. Four members backed an immediate quarter-point reduction, warning that rates may already be “significantly too high.”

“The Bank’s decision to hold was always expected, but the debate is now shifting rapidly towards when the first cut comes,” says Nigel Green. “The combination of three consecutive months of 3.8% inflation, slowing wage growth, and weakening consumer demand points to an economy that is losing momentum. That should focus minds on a December move.”

UK inflation has remained below 4% since July, and core inflation has continued to moderate. Meanwhile, official data shows that wage growth cooled in September from its summer highs, while retail sales and business investment both softened through the third quarter.

“The data tell a consistent story — inflation has peaked, and real economic activity is starting to feel the strain of higher borrowing costs,” notes Nigel Green.

“If the Bank waits too long, it risks pushing the economy into a deeper slowdown just as fiscal policy is being readjusted.”

The Bank’s latest decision came against a backdrop of increasing global monetary easing.

The European Central Bank has signalled openness to rate cuts in early 2025, while the Federal Reserve has already slowed the pace of tightening and hinted that the next move is likely downward.

“The UK risks falling out of sync if it clings to restrictive settings while other major economies pivot,” explains the deVere CEO.

“A December cut would show readiness to respond to evolving data rather than clinging to backward-looking caution.”

He warns that maintaining rates at 4% despite signs of softening demand will weigh heavily on households and small businesses over the winter.

“Mortgage renewals are already squeezing disposable income. Firms are holding back on investment. The longer this drag persists, the more lasting the damage to productivity and growth.”

Nigel Green argues that a modest 25 basis-point cut in December would be both symbolic and practical.

“It would signal confidence that inflation is under control while helping to stabilise consumer and corporate sentiment heading into 2025. It would also align monetary and fiscal policy more effectively after the Budget.”

Markets are already pricing in the likelihood of a cut within the next two meetings. “Investors are reading the same signals the Bank is: inflation is anchored, the labour market is cooling, and output is stagnating,” he says.

“This mix calls for pre-emptive adjustment rather than waiting for cracks to widen.”

He stresses that the Bank’s credibility depends not only on defeating inflation but also on avoiding unnecessary economic damage.

“Inflation is yesterday’s fight. The challenge now is sustaining growth without reigniting price pressures. The evidence points to a window of opportunity in December to start rebalancing policy.”

Nigel Green concludes: “The narrow vote shows how close the debate has become.

“The Bank should use the next six weeks to prepare markets for a measured step in December. Doing so would show that it recognises the changing reality of the UK economy and is ready to act decisively.”

‘Dovish hold’ as BoE rate decision plays second fiddle to Budget

• With Budget weeks away, Rathbones Head of Market Analysis says cuts on the way just not now as tone of commentary provides ‘small boost to equities and gilts’
• Financial planner Alex Race says saving rates ‘on a downward trajectory’
• Rathbones is one of the UK’s leading wealth and asset management groups

Commenting, John Wyn-Evans, Head of Market Analysis at Rathbones, says: “The hold was widely expected. However, unlike the US Federal Reserve’s recent ‘hawkish cut’, today’s decision could be described as a ‘dovish hold’. The vote split was just 5-4 in favour of no change vs the 6-3 average view of economists polled by Bloomberg. There was also a subtle change in the policy wording, with the path of future rate cuts being described as ‘gradual’ rather than ‘careful’.

“Inflation risks are seen as more balanced than previously, helped by recent more favourable data. But Governor Andrew Bailey (who casts the deciding vote to hold) highlighted the need to see more data. Even so, more rate cuts are on the way, barring a shock.

“Market reaction was muted. In terms of interest rate expectations, futures prices still imply a further pause in December (63% probability of a cut), with the next reduction coming in February. The relatively dovish vote and tone of commentary provided a small boost to both equities and gilts, but nothing really meaningful.

“This event was always going to play second fiddle to the Budget on 26 November. The outcome of that and its impact on the growth and inflation outlook will play a large part in the next rates decision meeting on 12 December.”

Commenting, Alex Race, Chartered Financial Planner at Rathbones, says: “The last interest rate decision before the Budget offered no reprieve for the Chancellor, who may have been hoping for a cut to ease the fiscal conundrum. Lower borrowing costs could help boost consumer spending and encourage the business investment needed to support much needed economic growth.

“If, as in September, inflation cools more quickly than anticipated, the Monetary Policy Committee could sneak in a rate cut before Christmas – but that remains a big if.

“For households, this continued pause is unlikely to trigger a dramatic shift in the mortgage market, while savings rates appear to be on a downward trajectory.”

Interest Rate decision: “any good news for UK borrowers, investors and developers on ice for the time being”

Ryan Etchells, Chief Commercial Officer at specialist property lender Together, said: “The Bank of England has erred on the side of caution today, putting any good news for UK borrowers, investors and developers on ice for the time being.

“Despite a positive inflation reading in the last report, the Bank knows that the dangers of volatility could rear their ugly head should rates be cut too early. While the MPC’s 2% inflation target is within reach in the coming months, this comes at the expense of the wider economy, which is in dire need of growth and will have to contend with continued elevated borrowing costs. The Government’s own target of 1.5 million new homes by the end of parliament stands to be embarrassingly undershot should the current lack of financial incentives for private developers continue.

“Hopes and expectations now turn to the Budget later this month, with the industry poised on a knife’s edge. Potential changes to property tax, including a rumoured replacement of the stamp duty regime with a national property tax, may provide relief to the property market, or add further financial headaches to the bonfire.”

Base rate holds at 4% – Mortgage Advice Bureau reacts

Ben Thompson, Deputy CEO, Mortgage Advice Bureau:

“It’s no surprise that the Bank of England has acted with caution, choosing to hold the base rate at 4%. This decision breaks the streak of quarterly rate cuts, and with the Autumn Budget fast approaching and meaningful tax rises likely to be imminent, the Bank is clearly waiting for certainty on the inflationary outlook before making any further moves. Homebuyers and movers should therefore anticipate a stable rate environment for the time being.

“While the headline rate may feel elevated, the reality on the ground is much more encouraging. Three years of economic adjustment have delivered a much brighter picture: house price growth has flattened, wage growth in real terms is on the rise, and borrowing power is significantly better than it was 12 to 24 months ago. With lenders offering a wealth of innovative products, there are countless opportunities for prospective buyers to secure a competitive deal.

“Whatever your homebuying plans, the message is simple: don’t delay. Playing the waiting game for one or two marginal base rate cuts is a gamble. If the economic confidence that the Bank is waiting for truly takes hold, a surge in demand could see house prices accelerate quickly. This essentially means that any small savings made on a lower mortgage rate would be eaten up by a higher property price. If you’re thinking of buying or moving, now is the time to act before market momentum returns fully.

“As always, the importance of speaking to a mortgage broker cannot be understated, as they can provide bespoke guidance based on your financial circumstances, and help you navigate the current market to secure the right deal.”

Comments on today’s base rate vote (‘hold’) from Claire Jones, savings expert at £17bn cash management platform, Flagstone: 
 

After Rachel Reeves’s surprise statement on Tuesday, warning us that she’ll make the ‘necessary choices’ and that we must all ‘do our bit’, it felt increasingly likely that the base rate would fall today.

Should future tax changes materialise this could place further pressure on the economy, potentially prompting the Bank of England to consider further rate adjustments. 

There’s still a whole Budget to come, another base rate vote before year-end, and only one more paycheck until Christmas. Hardworking people would be forgiven for feeling uncertain about their future finances. Savers would be wise to focus on what they can control – and managing their savings is one of them. Whether that means locking in a competitive fixed rate or simply moving idle cash into a higher-yielding account, taking action now can bring some certainty to an otherwise unpredictable environment.