The Bank of England (BoE) has narrowly voted in favour of holding interest rates at 4% following their final meeting before the upcoming Budget.
Analysts had been split prior to the announcement, with some predicting a hold while others anticipated a 0.25% cut due to September’s inflation data.
The rate of inflation last month was 3.8%, well above the Bank’s 2% target, but lower than many expected.
The Bank’s Monetary Policy Committee (MPC) voted five to four in favour of holding rates at lunchtime today (6 November).
The Bank of England had reduced its benchmark interest rate by 0.25 percentage points every three months since August last year – until today.
George Brown, senior economist at Schroders, said holding rates was the “right decision” with inflation still nearly double the 2% target.
“The Bank will be in a stronger position after the dust settles from the Budget, armed with additional jobs and inflation data, to judge whether further easing is warranted in December,” he said.
“A cautious approach remains appropriate given the risk that high inflation becomes entrenched, due to sticky wage growth and subdued productivity.
“However, this may change if reports the chancellor intends to double her fiscal headroom to £20bn, through fiscal tightening in the region of £40bn, are true.
“Alongside mooted tax cuts on household energy bills, if these measures materialise, they could create scope for the Bank to cut multiple times next year.”
Mark Ashbridge, managing director at leading London and Cotswold-based finance and mortgage advisory firm, Ashbridge Partners, said: “The Monetary Policy Committee have kept their powder dry as they await the outcome of the Autumn Budget.
“If the chancellor goes for the nuclear option and raises income tax across the board then it’s possible that future interest rates will reduce more than is currently expected due to the squeeze inflicted by increased income tax.
“At the same time the banks are competing hard for commercial and residential mortgage business, and we expect this to continue.”
Sarah Pennells, consumer finance specialist at Royal London, said: “The Bank of England has opted for caution, holding rates steady as inflation remains flat. For now, the Bank is holding off any changes waiting to gauge the Budget reaction and broader economic trends before making its next move.
“The decision will disappoint many mortgage holders hoping for some relief. Our research reveals that over half (53%) of mortgage holders are paying on average £327 more a month compared to a year ago, while 13% of mid-lifers describe themselves as in or near financial crisis.”
Charlie Ambler, co-chief investment officer and partner at wealth management firm Saltus, said: “Any forward guidance will likely remain cautious ahead of the Autumn Budget.
“The chancellor is expected to announce a wave of tax hikes that could harm economic growth and subsequently provide grounds for a rate cut in December.
“In the interim, the Bank must uphold its duty to provide certainty and avoid deviating from its slow and steady cutting cycle.”
