The Bank of England is expected to keep interest rates steady at its next policy meeting on Thursday.
Market experts are bracing for the announcement on December 19, with the consensus being that the Monetary Policy Committee will opt to hold the UK’s base rate at 4.75%.
This key rate dictates the cost of borrowing from banks, including loans and mortgages, and has remained elevated in recent times as a measure to rein in soaring inflation.
Earlier this year, inflation dipped below the Bank’s 2% goal, leading to rate reductions in August and November.
However, a sudden surge saw inflation climb to 2.3% in October, marking the most rapid increase in two years, according to official statistics.
The jump, largely attributed to escalating energy costs, exceeded predictions and quashed any lingering expectations of an additional rate cut before the year’s end.
Analyst Michael Hewson described the inflation spike as “an uncomfortable reminder that UK inflation always tends to be stickier than many would like”.
With Labour’s recent tax hikes on businesses following the October Budget, the Bank’s decision-makers are expected to proceed with caution.
Chancellor Rachel Reeves announced an increase in national insurance contributions (NICs) for businesses during the fiscal report, aiming to fund improvements in public services such as transport and the NHS. However, some specialists have cautioned that these tax increases could fuel inflationary pressures.
Andrew Bailey, the Governor of the Bank, stated at the beginning of December that the impact of the NICs increase on the economy is still uncertain, labelling it as the “biggest issue” post-Budget.
Mr Bailey has consistently maintained that the Bank will adopt a steady approach towards reducing interest rates in previous meetings.
A slight drop in the gross domestic product (GDP) in October presents a complication for policymakers.
Higher interest rates typically hinder GDP growth, which could sway some of the nine members of the Monetary Policy Committee towards voting for a rate cut in December.
However, economists attribute the contraction in October’s GDP to people adopting a wait-and-see attitude ahead of the Budget policy decisions at the end of the month, predicting that growth will resume.
Thomas Pugh, an economist at consultancy firm RSM, believes it’s unlikely the committee will deviate from its gradual approach.
He said: “Ultimately, that means mortgage holders won’t be getting an early Christmas present from the BoE this year.
“We anticipate four cuts in 2025, resulting in rates ending the year at around 3.75%, but the risks are skewed towards fewer rate cuts.”
