Market News

The Bank of England has held the interest rate at 3.75 per cent in its first vote of the year, after the rate was cut six times in 18 months.

Although the result was expected, the nine-person Monetary Policy Committee (MPC) vote turned out to be much closer than anticipated, with a 5-4 result paving the way for cuts if the future economic outlook is positive.

Minutes from the MPC meeting suggested that inflation, wage growth and unemployment were the driving factors in making the decision.

Andrew Bailey, the Bank’s governor, said: “We now think that inflation will fall back to around 2 per cent by the spring. That’s good news.

“We need to make sure that inflation stays there, so we’ve held rates unchanged at 3.75 per cent today. All going well, there should be scope for some further reduction in the Bank rate this year.”

Despite a December uptick, several members of the voting committee think inflation remains on a manageable path, with the outlook described as “welcome”. But their concerns are about wage growth staying higher than required if interest rates come down too soon.

The four members who voted to cut this time round “judged that the risk from greater inflation persistence had receded materially”.

Markets had mostly been pricing in two rate-cuts during the current calendar year, but few were expecting the first of those to come before the summer. Following Thursday’s vote, it has now been brought forward to April.

Several mortgage lenders have been raising their products slightly over the past week or so, some of the best deals leaving the market in the process, with experts now suggesting that the market may stabilise somewhat following the MPC’s vote.

“Rates have started to creep back up over the last couple of weeks,” said Peter Stimson of MPowered Mortgages. “However, the surprise voting pattern behind today’s Bank of England decision may mean that a fall in swap rates, which lenders use to determine the fixed rates they offer to customers, could appear in the coming days. Competition is still intense among lenders, and this, combined with falling funding costs, could be great news for borrowers in the days ahead.”

The other side of the equation is savings, with industry voices urging consumers to ensure they are getting a good rate. Up to 4.5 per cent is still attainable for easy access accounts.

For those sitting on cash piles in savings accounts, Bestinvest’s personal finance expert Alice Haine reminded them to check the level of interest they are earning. With rates on the decline and inflation still a factor, it remains vital to ensure that your money is earning a higher level of interest than the rate prices are rising at – currently 3.4 per cent, from December’s data.