The Bank of England left its benchmark interest rate on hold at 5% today in a blow to home owners and business.
The Bank’s rate setting Monetary Policy Committee (MPC) voted by 8 to 1 to keep the cost of borrowing unchanged.
Although the decision was widely expected in the City it will disappoint the property market and businesses saddled with high levels of debt.
The next cut, almost certainly a quarter point to 4.75%, is now likely to come in November after Rachel Reeves’s first Budget at the end of October.
The first cut in four years was made last month when rates fell from 5.25% to 5%.
Expectations that the Bank might order back to back cuts to stimulate the economy had been rising in recent days after weaker than expected GDP growth stalled in July.
Last night they were further stoked by the US Federal Reserve’s decision to cut its rate by a full half point.
However, MPC members said they are still worried about inflationary pressures in the economy.
The MPC said: ”Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.”
Inflation figures this week showed price rises in the services sector - seen as a key indicator of domestic inflation - are actually accelerating. Services inflation went up from 5.2% to 5.6% in the year to July.
Thomas Pugh, economist at consulting firm RSM UK, said: “ A rate cut in November looks like a sure bet, and it is increasingly likely that there will be a ratecut in December as well, especially if the Fed continue to ease policy this year.
“Overall, this is just a pause in the policy easing cycle. We expect at least one more rate cut this year and the case for two looks considerably stronger now. Westill expect four cuts in 2025, but that partly depends on just how “painful” the Budget turns out to be.”
Guy Gittins, Chief Executive Officer of estate agents Foxtons said:“The nation’s homebuyers will have understandably been hoping for a second consecutive rate reduction today,having already responded favourably to what was the first cut in four years at the start of August.
“Whilst rates have been held today, this improving market momentum is only likely to strengthen further, as mortgage rates continue to trend downwards, putting the property market in very good stead for the remainder of the year.”
Andy Mielczarek, CEO of digital bank Chetwood Financial, said: “The Bank of England’s decision comes as no surprise and reinforces the sentiment that a period ofeconomic stability is best for Britons.
“ With inflation holding steady, it’s important that the central bank lead by calm and confident example to the public, and it has done precisely that they can make confident longer-term financial decisions.”
Paul Heywood, chief data & analytics officer at Equifax UK, said: “With house prices at a two-year high, home buyers, whilst hopeful for another cut, will be grateful for no further rate increases and start to feel the benefit from relief in mortgage rates. Nonetheless, affordability remains a significant challenge for consumers, as average repayments on new lending remain 53% higher than levels observed in January 2022.
