The Bank of England is expected to keep its base interest rate steady at 4.75%, following the Monetary Policy Committee (MPC) decision. This comes after inflation in the UK rose to 2.6% in November, exceeding the Bank’s target of 2%. Analysts suggest the central bank will maintain its cautious approach despite Governor Andrew Bailey’s previous statement that rates will likely decline gradually. The MPC had previously reduced rates from 5% in November, marking the second cut this year.
The Bank’s primary objective is to control inflation, using interest rate adjustments to influence borrowing and spending. Higher rates typically reduce consumer spending and slow price increases but may also suppress economic growth and job creation. Recent wage growth and persistent inflation pressures suggest that a further rate cut is unlikely in the short term. Capital Economics predicts inflation could decrease in December before rising again in January, with a return to the Bank’s 2% target by late 2025.
High street lenders have already factored in the current rate levels, keeping mortgage rates significantly elevated compared to the last decade. The average two-year fixed mortgage rate stands at 5.04%, with five-year deals averaging 4.14%. Despite this, experts believe the Bank will maintain the 4.75% rate for longer to navigate the delicate balance between curbing inflation and supporting economic stability.