The Bank of England has held the base interest rate at 4.75% following today’s Monetary Policy Committee (MPC) meeting, as widely expected.
This decision comes as inflation ticks up to 2.6% in November, staying above the Bank’s 2% target for the second month in a row.
With rising energy costs and wage growth adding to inflationary pressures, the Bank is playing it safe for now. While inflation isn’t climbing at an alarming rate, it’s enough to keep policymakers cautious. Global factors, like the potential ripple effects of President-Elect Trump’s trade tariffs, add another layer of uncertainty to the outlook.
The MPC seems to be sticking to a “wait and see” strategy, with today’s vote split 6 to 3 in favour of holding steady. Markets are unlikely to react strongly to the decision, as it was widely expected. Gilt yields are expected to stay steady, and rate-sensitive stocks, such as banks, shouldn’t see major shifts.
For investors, the key takeaway is that the Bank is holding steady while watching inflation closely. Below, market experts share their thoughts on what this means for the economy, asset performance, and portfolio strategies. Stay tuned for their insights to help guide your next steps:
Chris Arcari, Head of Capital Markets, Hymans Robertson says: “As predicted, the Bank of England (BoE) have chosen to leave the final base rate for 2024 unchanged at 4.75% during its last meeting of the year. Looking forward to 2025, we expect the BoE to begin to reduce rates to less restrictive levels in 2025 as the labour market slowly loosens. We expect between two and three rate cuts in 2025 – not too dissimilar to swap markets’ expectations. Disinflationary factors such as demographics, technological innovation and globalisation are expected to temper inflation over the medium to long term. However, the risk of a switch to a regime of permanently higher inflation remains elevated. While we believe inflation, and interest rates, will decline from current levels and conceivably undershoot their targets, we don’t foresee a longer-term return to the ultra-low-rate environment we saw after the global financial crisis. We expect nominal interest rates to bear a closer relationship to real growth and inflation, and volatility to remain higher, in the coming decade than they did in the last.”
Jeremy Batstone-Carr, European Strategist, Raymond James Investment Services, said: “As widely expected, there has been no pre-Christmas rate cut to provide some much-needed festive cheer for hard-pressed households and businesses. Instead, the rate-setting Monetary Policy Committee (MPC) has voted by a majority to maintain the base rate at 4.75%.
“Despite the UK economy’s weak performance over the autumn, senior Bank officials have judged that price and wage pressures remain too strong for comfort. Confirmation on Wednesday that consumer prices have moved even further away from the target 2% level followed on from stronger than expected wage growth, which the Bank of England also failed fully to predict.
“The Bank has also underlined its concerns around both domestic and international economic weakness. Today’s statement accompanying the “no change” verdict refers to the country’s loss of economic momentum. But critically, deteriorating domestic and global activity is not yet translating into weaker prices. Furthermore, the Bank is cognisant of potential upside risks to inflation due to President-elect Trump’s proposed US import tariff increases. Although goods traded between the UK and US are broadly in balance, import tariff impositions are, if enacted, very likely to stoke inflationary pressures, particularly in the event of a widespread retaliatory response.
“The Bank of England has judged that the domestic economy is not sufficiently vulnerable so as to require immediate policy action, as is the case in the Euro Area. It has however suggested that subdued activity might be a necessary prerequisite for ensuring that inflationary pressures do not become too entrenched. On this basis, the Bank continues to tread cautiously, maintaining its gradual approach to future rate cuts.”
Ed Monk, associate director at Fidelity International, comments: “The decision to hold rates today underlines that the battle to bring inflation under control is still not won. The outlook for rates has changed meaningfully over the past few weeks with markets pricing in roughly one fewer rate cuts over the next 12 months than had been the case a month ago. Inflation has proved more difficult to shift, with the official rate creeping back to 2.6% and ending the year higher than the Bank had been forecasting. Further increases are expected in the first half of 2025.
“Meanwhile, growth is running out of steam with the economy unexpectedly shrinking in October. That’s a horrible mix for policymakers – both at the Bank and in Downing Street, where Rachel Reeves has pinned her plans on a recovery to widen the tax base next year and help pay for the Government’s huge spending injection. Interest rates staying higher for longer will make that harder, as well as increasing the cost for the Treasury to borrow money.
“For investors, the next few months could prove choppy as further updates on rates and inflation come through. Hawkish words from the Fed were enough to deal a nasty blow to US shares this week. If volatility arrives it will pay to focus on your long-term investing goals, in the knowledge that the downs are as much part of investing as the ups. Especially after such a long period of uninterrupted gains for shares.”
Simeon Willis, Chief Investment Officer at XPS Group said: “The MPC deciding to take it easy on reducing rates isn’t surprising in an environment where inflation is above target and rising.
“Inflation has been picking up over the last six months. This was expected as energy price falls during the latter half of 2023 fell out of the calculation, but recent price rises in October were higher than trend levels.
“At the other end of the yield curve, longer-dated gilt yields have been rising. Nominal and real gilt yields are now back at levels previously seen at the height of the gilts’ crisis and this years’ Budget. This is generally good news for pension schemes and has boosted funding levels to new highs”
Ed Monk, associate director at Fidelity International, comments: “The decision to hold rates today underlines that the battle to bring inflation under control is still not won. The outlook for rates has changed meaningfully over the past few weeks with markets pricing in roughly one fewer rate cuts over the next 12 months than had been the case a month ago. Inflation has proved more difficult to shift, with the official rate creeping back to 2.6% and ending the year higher than the Bank had been forecasting. Further increases are expected in the first half of 2025.
“Meanwhile, growth is running out of steam with the economy unexpectedly shrinking in October. That’s a horrible mix for policymakers – both at the Bank and in Downing Street, where Rachel Reeves has pinned her plans on a recovery to widen the tax base next year and help pay for the Government’s huge spending injection. Interest rates staying higher for longer will make that harder, as well as increasing the cost for the Treasury to borrow money.
“For investors, the next few months could prove choppy as further updates on rates and inflation come through. Hawkish words from the Fed were enough to deal a nasty blow to US shares this week. If volatility arrives it will pay to focus on your long-term investing goals, in the knowledge that the downs are as much part of investing as the ups. Especially after such a long period of uninterrupted gains for shares.”
Rachel Winter, Partner at Killik & Co, said “Investors and consumers in the UK will be disappointed that the Monetary Policy Committee has not given them a Christmas gift of a final rate cut in their last decision of 2024. The Autumn Budget has proved inflationary, and this means that interest rates will likely need to remain at higher levels to keep this inflation in check.“The last few months have seen a number of dramatic events on the world stage which will be on investors’ minds, from the re-election of Trump in the States to a surprise declaration of martial law in South Korea, all of which serve as potent reminders of the importance of having a diversified portfolio that can weather any market shocks. As we move into 2025, now is as good a time as any to reflect on the key fundamentals of successfully investing to build wealth. A good New Year’s resolution would be to invest little and often into a diverse range of asset classes and sectors. Speaking to a financial adviser would be a good idea for those who are interested in forming a comprehensive strategy that is tailored to their specific goals.”
Daniele Antonucci, Chief Investment Officer at Quintet Private Bank (parent of Brown Shipley): “No surprise that the Bank of England left its policy rate unchanged at today’s meeting. After all, inflation has accelerated to above 2.5% from 1.7% in September, surprising to the upside especially when it comes to goods and food, along with still elevated services inflation.
“Importantly, there’s a risk that inflation accelerates somewhat further in the near term. Wage growth remains resilient, potentially adding to upside inflation risks. At the same time though, economic growth indicators have weakened lately, and the Bank’s expectations have moderated, too. At longer horizons, that’s what could contribute to bringing inflation down.
“In part, this is what the Monetary Policy Committee aims to see: a restrictive stance for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further. In all, this points to gradual rate reductions, balancing the need to squeeze inflation out of the system while mitigating the degree of economic weakness that’s already apparent in the data.”
Janet Mui, head of market analysis at wealth manager RBC Brewin Dolphin: “The Bank of England stayed put today as fully expected by markets. The surprise element is there are three MPC members voting for a rate cut. So on balance it’s less hawkish than markets were broadly expecting.
“The Bank kept its guidance of a gradual rate cut, but admittedly there is a very high degree of uncertainty on the path of interest rates going forward. While the Governor has previously expressed a desire to cut interest rates about every quarter, this view is now highly challenged given the re-acceleration in wage growth and inflation.
“A great difficulty lies in the reaction of businesses to the rise in employer NI. Scenarios range from firms passing on higher prices to lower hiring/hours worked, or a mix of them which is stagflationary (higher inflation with lower growth). Furthermore, external drivers like risk of tariffs and impact of a weaker sterling can be inflationary which is out of the Bank’s control.
“When there is so much uncertainty, it is common sense for the Bank to navigate with caution and gradualism in 2025. Markets have largely curtailed rate cut expectation in 2025 to just about two, compared to close to four just a month ago. We think the bar for a rate cut is higher after the recent inflation data, but if economic data continues to weaken notably, the Bank is still likely to lean toward a rate cut in February.”
