Interest rates held at 5.25% – reaction

The Bank of England has opted to keep interest rates on hold at 5.25%, where they have stayed since August.

The decision was taken by the Monetary Policy Committee by 6-3, with the three voting to raise the interest rate by 0.25%.

While the markets are more positive about the direction of travel on the interest rate, the MPC warned that key indicators of UK inflation persistence “remain elevated” and is expected to remain near to its current rate [4.6%] until “around the turn of the year”.

Andrew Bailey, the Bank’s Governor, told the media:  “My view at the moment is it’s really too early to start speculating about cutting interest rates.

“I don’t think that we can say definitively that interest rates have peaked… I hope that we are at the top of the cycle.”

Susannah Streeter, head of money and markets, Hargreaves Lansdown, said: “The Bank of England isn’t budging from the summit, and as expected, policymakers are keeping rates on hold. Stubborn inflation is still a worry and it looks like we are set to be stuck on this cold high plateau for some time. The descent, when it comes, is likely to be gradual rather than a vertiginous drop.

“The timing of any cut will depend on treading the delicate balance between cooling inflation and supporting the economy, given that stagnation conditions have bedded in. Inflation is set to fall in next week’s figures – although not as dramatically as a month earlier.

“In fact, over the course of 2024, inflation may not fall as far, or as fast, as you may suspect – because the Bank of England will need to contend with domestically-fuelled inflation, which is a tough nut to crack.

“As a result, the Office for Budget Responsibility thinks inflation will average 3.6% in 2024. To keep this under control, the Bank of England is going to need to keep an iron grip on interest rates.”

Ben Waugh, managing director of later life lender more2life, said: “The stabilising of the interest rate at 5.25% is just another indication that the turbulence of the past year is behind us.

“As the third meeting in a row where rates have stabilised, this decision also signifies a longer-term confidence returning to the market.

“As we see inflation rates steady and house prices settle during the Christmas period, many first-time buyers will be more inclined to take their first step onto the property ladder.

“Despite these encouraging signs of clearer waters ahead, it is still important to remember that rates remain at an all-time high, with the cost-of-living crisis also posing affordability issues for borrowers.”