Mortgage relief for Scots delayed for months as Bank of England holds interest rates steady

Mortgage holders and borrowers will have to wait until at least the start of February to gain some relief after the Bank of England opted to hold interest rates at 4.75 per cent amid “heightened uncertainty in the economy” following the UK Budget and US presidential election.

The UK central bank’s nine-strong monetary policy committee (MPC) said it was keeping rates unchanged after cutting the level by a quarter point in August and again in November. Six members of the MPC preferred to keep the bank base rate at 4.75 per cent, while three voted for a further quarter point reduction.

Governor Andrew Bailey said the central bank needs to make sure inflation returns to its 2 per cent target level on a “sustained basis”, adding: “We think a gradual approach to future interest rate cuts remains right, but with the heightened uncertainty in the economy we can't commit to when or by how much we will cut rates in the coming year.”

The Bank of England has held interest rates at 4.75% as it cautioned over “heightened uncertainty in the economy” following the UK Budget and US presidential election. | PA/Canva

The next three MPC meetings are due to take place on February 6, March 20 and May 8 with subsequent 2025 meetings in June, August, September, November and December.

New official data on Wednesday showed that the annual rate of consumer prices index (CPI) inflation rose to 2.6 per cent last month, its highest level since March and the second monthly increase. The central bank said this was slightly higher than its previous expectations and reflected stronger price rises in core goods and food, while inflation across the services sector also remained elevated, though relatively stable.

This data, along with continued wage growth, persuaded six members of the committee to maintain a gradual approach to lowering rates. Furthermore, policymakers said they considered the potential impact of measures announced in the UK government's autumn Budget, and from geopolitical tensions and trade policy uncertainty. These factors meant the economic outlook was more uncertain.

Measures in the Budget, namely a planned increase to employers’ national insurance contributions and the national living wage, could affect future inflation, the MPC noted. This is because businesses have indicated that they might respond to higher taxes by raising prices, or by laying off existing workers.

Meanwhile, the committee also discussed risks to inflation and economic growth from the incoming Donald Trump presidency in the US, as he had proposed hiking tariffs which could influence global trade. How big an impact such a measure could have on the UK economy is not yet known, the MPC emphasised.

The bank’s decision comes a day after policymakers in the US reduced interest rates, but signalled they would be slowing the pace of rate cuts going forward after inflation forecasts were revised higher. That cautious tone and shift in expectations weighed heavily on investor sentiment, with US and European stock markets seeing sharp falls.

Andrew Bailey, Governor of the Bank of England, during the Bank of England Monetary Policy Report Press Conference, at the Bank of England, London. Picture: Benjamin Cremel/PA Wire

The Bank of England’s decision nonetheless followed a split vote, with three members suggesting that a weakening jobs market and global conditions could put downward pressure on wages and prices. The pound pared back a little after the rate decision.

Felix Feather, economist at Scottish investment giant Abrdn, said: “Today’s Bank of England decision to leave rates on hold comes as no surprise, given recent strength in earnings data. However, the MPC vote of 6-3 was more closely run than expected. This reinforces our expectation for a [quarter-point] cut in February. More broadly, we expect the bank to retain a gradual approach to easing, given the prospect of easier fiscal policy boosting inflation next year.”

Anna Leach, chief economist for the Institute of Directors, warned of a “tricky” year ahead amid concerns over markedly weaker confidence and activity in the private sector.

“Inflationary pressures have now shifted for the coming year, with wage growth and price-setting expected to lend more persistence to inflation,” she said. “But it’s unclear whether stronger public sector spending will fill the gap left by a weaker private sector.

“Geo-political developments add further uncertainty to the outlook and markets will remain sensitive to any upward pressure on government borrowing, adding volatility to borrowing costs for businesses and households. As the new government seeks to change the growth trajectory for the UK, 2025 is set to be a tricky year, with a lot hanging on how well it spends the additional money it has allocated itself.”

The markets are predicting two or possibly three cuts next year - fewer than previously anticipated when inflation headed down to just 1.7 per cent at the end of the summer. If the UK economy continues to move in a negative direction, however, the Bank of England may be forced into cutting rates sooner rather than later.

Victor Trokoudes, founder and chief executive at smart money app Plum, said: “Any mortgage holders who have been holding out for substantial cuts in 2024 will be disappointed. Looking at the market forecasts earlier in the year, they may have been hoping for some significant cuts by this point. As it stands, quoted mortgage rates remain painfully high compared with the last decade.

“On the savings side, some rates will have already dropped in response to last month’s cut, but there’s still a lot of good options out there for growing savings. However, with inflation back on the rise, there’s all the more reason to make sure your money is working really hard. Fixed rate accounts are something to consider, as well as high-interest cash ISAs which keep your money inside a tax-wrapper - especially important considering that tax thresholds will be frozen until 2028.”