UK interest rates live: Bank of England holds at 5% after shock US Fed cut

Jo Pocklington, of Purplebricks Mortgages said: “There’s absolutely no need for homeowners to panic about the base rate being held today.

“Mortgage rates are nothing like what they were two years ago and there’s no reason to believe they’ll return to the levels seen by the end of 2022 any time soon. Given it was a close call on whether the Bank of England would drop the base rate in August, it’s not a huge surprise to see rates held for September.”

The value of the pound rose to its highest levels since March 2022, just above $1.33, having traded around $1.3266 ahead of the Bank of England’s decision.

It comes a day after the Federal Reserve opted to cut US interest rates for the first time in four years, by a shock 0.5 per cent.

The prospect of a base rate cut in November has fallen, with trading markets now suggesting there is a 60 per cent chance of rates to be cut at that meeting.

Traders will likely be pointing to the fact that eight out of nine members of the Bank’s Monetary Policy Committee opted to hold rates at 5 per cent, in addition to governor Andrew Bailey’s warnings that the Bank must take care “not to cut too fast or by too much”.

Tory former Jeremy Hunt has said the Bank of England’s base rate cut last month was “thanks to difficult decisions by the last government”.

Mr Hunt, now shadow chancellor, said: “Today’s announcement shows how important it is that the new government works hard to hold down inflation, which will pave the way for future interest rates cuts.

“New employment laws that put up costs for business will ultimately feed through into higher prices so they should think again before damaging UK competitiveness as they currently plan.”

The Bank of England has said it now expects the British economy to grow 0.3 per cent this quarter, down slightly from the 0.4 per cent increase forecast in August.

The central bank said its analysts believe that improving real incomes, last month’s base rate reduction and anticipated further cuts in interest rates “had underpinned improved sentiment and expectations of increased activity across most sectors around the turn of the year”.

The Bank of England says members of its nine-strong Monetary Policy Committee “took different views on the probabilities and risks” facing the UK economy as they decided on the base rate at today’s meeting.

Noting that eight members preferred to hold the rate at 5 per cent, the Bank said: “Wage and price-setting had continued to normalise and UK activity growth had been broadly in line with expectations, although there was some greater uncertainty around the near-term global outlook.

“There was a range of views among these members on the degree to which the unwinding of past global shocks, the normalisation in inflation expectations and the current restrictive policy stance would lead underlying domestic inflationary pressures to continue to unwind, or whether these pressures could prove more entrenched, possibly as a result of more structural factors or greater momentum in demand.

“Despite these differences of view, the current policy stance was judged to be appropriate. For most members, in the absence of material developments, a gradual approach to removing policy restraint would be warranted.”

Simon Gammon, a managing partner at Knight Frank Finance, said: “Caution from the Bank will have little impact on the slow, downward trajectory of mortgage rates.”

He said a “brightening global picture” has been pushing down swap rates, which lenders use to price their loans, “giving the lenders leeway to keep cutting”.

Mr Gammon added: “Wednesday’s UK inflation data did little to change the narrative that the Bank of England has the wiggle room to cut the base rate once or twice before the end of the year.”

“Dark clouds are gathering once again” and the government may need to rely on the Bank of England to deliver economic growth with rate cuts larger than otherwise expected, an analyst has warned.

Lindsay James, investment strategist at Quilter Investors, said: “The general consensus is to expect more rate cuts this year and into next as the economic momentum that had built up slows and inflation remains close to target. Two more cuts are expected by financial markets, and with time running out in 2024, the next meeting is likely to see the BoE’s next cut delivered.”

Warning that chancellor Rachel Reeves’ first Budget is “the spectre hanging over all of this”, he added: “Taxes are guaranteed to rise, but by what extent we are not sure and thus the economic impact cannot be properly gauged. Businesses and consumers are likely to cut back on spending in anticipation of changes to their income and as such growth could slide further.

“Given Labour’s emphasis on wealth creation and economic growth in the run up to the election, it may in turn, have to rely on the Bank of England to deliver this in the short term by providing more regular or larger rate cuts than perhaps would have been expected otherwise.

“A rate cut would have been especially welcomed by consumers and businesses alike, given the economy remains close to stall speed. Having had a positive and rather buoyant first half of 2024, dark clouds are gathering once again and as such action from the BoE will be required sooner rather than later.”