The Bank of England held its interest rate at 5.25% today giving a further respite to millions of hard pressed homeowners and businesses.
Members of the Bank’s Monetary Policy Committee (MPC), chaired by Governor Andrew Bailey, voted 6 to 3 to keep the cost of borrowing at its current level.
It was the second meeting of the MPC in succession when rates have been left unchanged, following 14 consecutive hikes since December 2021. This time the majority for a hold was a bigger than the 5-4 knife-edge split in September.
The three MPC members in the minority group all voted for anther quarter point hike to 5.5% and in its report the MPC said: "A further rise in Bank Rate remained a possibility. "The decision, which was in line with City forecasts, will boost hopes that the cycle of swingeing rate hikes has now peaked and that the next move will be down.
But, writing exclusively for the Standard Governor Bailey cautioned: "Many people will be relieved that rates haven’t gone up again this month. Some will be asking when it might come time to start lowering rates again.
" I can understand that. But there is absolutely no room for complacency on inflation. We need to see it fall all the way back to our 2% target. It’s been moving in the right direction, but there’s still a long way to go.
"At the Bank, we’ll be watching closely to see if further increases in interest rates are going to be needed. And, even if they’re not, rates will need to stay high for some time to make sure that inflation continues to fall. "
The MPC has hiked rates aggressively over the past two years in a prolonged struggle to rein in inflation.
The Consumer Prices Index stood at 6.7% in September, unchanged from August, but well down on the 11.1% peak last October. The Bank has a target inflation rate of 2%.
A big fall in the CPI is expected when October's figure is revealed later this month as result of the cap on energy bills dropping sharply from the average £1,976 to £1,834 .
The surge in interest rates has delivered a huge blow to the economy with property prices falling, the housebuilding sector seeing huge falls in demand, and company insolvencies now running at their highest rate since 2009.
The MPC now expects GDP to have been flat in the third quarter, well down on the 0.4% it precited in August. Lacklustre growth of just 0.1% is expected in the fourth quarter - also a downgrade - suggesting that the UK will be only a whisker away from recession in the second half of the year.
Paul Dales , Chief UK Economist at forecasters Capital Economic, said:"The Bank’s decision to leave interest rates at 5.25% for the second time in a row and the doubling down on the message that rates cuts are a long way away supports our view that Bank Rate will stay at 5.25% until late-2024 rather than until mid-2024 as investors expect.
"That said, a mild recession in the meantime may mean that rates are cut to 3.00% in 2025 rather than to the 4.25-4.50% priced into markets."
Andrew Hagger, Personal Finance Expert from Moneycomms said: "The monthly hikes in base rate may have stalled, but the cost of living squeeze hasn't gone away - increased energy costs, higher prices at the pumps and soaring mortgage rates mean there's little respite for the household budget at the moment."
"Many people will have to tighten their belts this Christmas, but will be hoping that 2024 is less harsh on their bank balance - however any rate reductions will be slow and steady, so it's likely to be another tough year ahead."
Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “Inflation is set to hit the government’s target – but it’s going to hurt. Rishi Sunak pledged to halve inflation – to 5.5% - by the end of the year.
"The Bank of England says it’s going to do even better – with inflation forecast to drop to 4.75% in the last three months of 2023. However, this will come at a real cost to the economy, with growth stagnating, and unemployment rising. It’s no wonder the Bank kept the engine of interest rates idling at today’s meeting. A rise under these conditions would risk pushing the economy into dangerous territory.
