Bank of England Base Rate Update: December 2024
The Bank of England has voted to hold the base rate steady at 4.75% during its December 2024 Monetary Policy Committee (MPC) meeting. This decision follows the rate reduction in November, which marked the first time the base rate dipped below 5% since June 2023. The move reflects ongoing caution in navigating economic uncertainty and inflationary pressures.
Let’s explore what this means for your finances and the property market.
Why Was the Rate Held at 4.75%?
The decision to maintain the base rate at 4.75% was influenced by several key factors:
- Inflation Trends: Inflation has eased from its peak of 11.1% in October 2022 to 1.7% in recent months. However, it ticked up slightly to 2.6% in November, driven by wage growth and public spending pressures.
- Economic Growth: The Bank forecasted zero growth for the economy between October and December, a downgrade from its earlier prediction of 0.3% growth.
- Autumn Budget Impact: Measures introduced in the Autumn Budget, such as higher National Insurance contributions, have contributed to uncertainty in the economic outlook.
Key Points from the MPC Meeting
The MPC voted 6–3 in favour of holding the rate at 4.75%. Here’s a breakdown of the discussion:
Diverging Views
Six members supported holding the rate, citing concerns over inflation persistence and the need for stability.
Three members argued for a 0.25% rate cut, emphasising the potential need for looser monetary policy to support economic growth.
Inflation Outlook
The Bank expects inflation to remain above its 2% target until at least 2026, with projections of 2.7% in 2025 and 2.5% in 2026.
Recent increases in consumer demand and public spending have added pressure to inflation levels, particularly in sectors like hospitality and retail.
Wage Growth
Wage growth remains higher than historical averages, with private sector earnings increasing by 4.8% in recent months.
The Bank is closely monitoring how businesses respond to higher costs, including whether these are passed on to consumers or absorbed in margins.
How Does This Affect You?
Mortgages
- Existing Mortgages: If you have a fixed-rate mortgage, your monthly payments will remain unaffected for now. Variable and tracker mortgage holders won’t see any immediate changes either.
- New Buyers: Although mortgage rates have stabilised in recent months, market activity may remain subdued until further rate cuts are implemented. If you’re considering a mortgage, now is a good time to review your options.
Savings and Investments
- Savings account rates are likely to stay stable, offering modest returns.
- For those looking to invest, the current environment of slower economic growth and inflation persistence requires careful planning.
What to Expect in 2025
The Bank of England has indicated that gradual rate cuts are likely over the next year, potentially lowering the base rate to 3.5% by early 2026. While no immediate changes are expected, the following factors could influence future decisions:
- Inflation Management: A gradual easing of inflationary pressures will shape the pace of rate reductions.
- Growth: GDP is projected to grow by 1.7% in 2025 before slowing to 1.3% in 2026.
- Monetary Policy Approach: The Bank is committed to a cautious, step-by-step approach to reducing rates, ensuring risks to inflation are carefully managed.
Conclusion
The decision to hold the base rate at 4.75% reflects the Bank of England’s ongoing effort to balance inflation control with economic stability. For homeowners, buyers, and savers, this stability provides an opportunity to review financial plans and prepare for potential changes in 2025.
If you’re unsure how these developments impact your mortgage or financial goals, Kerr & Watson is here to help. Our expert team offers tailored advice to ensure you’re making the most of the current economic climate.
