The Bank of England disappointed struggling homeowners and business chiefs today by leaving interest rates on hold at 5.25%.
It was the fourth consecutive meeting of the Bank’s Monetary Policy Committee (MPC) - chaired by Governor Andrew Bailey - when rate setters have opted for no change to the benchmark cost of borrowing.
MPC members voted six to three to hold rates at the level they have been at since August last year.
Two members wanted to increase bank rate by 0.25% to 5.5% and one member to cut by 0.25% , to 5%. However language suggesting rates may have to go up again was removed from the Bank's decision.The MPC said that while " services price inflation and wage growth have fallen by somewhat more than expected, key indicators of inflation persistence remain elevated.
"As a result, monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit. "
In its monetary policy report the Bank downgraded its forecast for GDP growth in the first quarter from 0.2% to flat. However, it expects growth to pick up and reach 0.5% by the first quarter of next year.
The decision on rates was widely anticipated in the City but will still come as a blow to mortgage holders hoping for relief from the high level of interest rates.
Most City commentators now expect the first cut to come at the May or June meetings of the MPC though some believe it could come as late as the Autumn.
Rates soared from an emergency level of 0.1% in December 2021 to the current 5.25% putting huge strains on the economy and leaving it on the brink of recession by the end of last year.
But hopes of an early cut after inflation fell more quickly than expected last year have been tempered by recent attacks on shipping in the Red Sea, which have stoked fears that higher freight costs could feed through to shop prices.
Yesterday Jay Powell, chairman of the US Federal Reserve, dampened down market hopes of a cut in rates at its March meeting.
Professor of Global Economy and Deputy Dean of Cranfield School of Management, Joe Nellis said: “Unfortunately, the Bank of England remains in deep water and the decision to keep rates at 5.25 per cent won’t turn the tide for millions of households who are struggling with the cost of living. Tension in the Middle East as well as new Brexit food checks are testing Britain’s supply chains and applying upward pressure on prices. This means more rough seas ahead for consumers in the short term until a possible interest rate cut in May.”
Jonny Black, chief commercial & strategy officer at abrdn adviser, said: “Another ‘hold’ decision reflects the Bank of England’s desire to not act too hastily in unwinding rates amid still volatile economic conditions.
“Indicators like slowing wage growth suggest that some inflationary drivers are easing. But the surprise rise in the latest CPI figures show that price rises remain strong, although are widely expected to slow in the months to come.
“All of this may mean that the Bank keeps to its ‘slow and steady’ strategy in the race to bring inflation back to target, and that the early start to rate cutting that many are hoping for won’t materialise..”
Mike Randall, CEO of Simply Asset Finance said “A hold in interest rates may put business leaders' minds at ease for now, but longer-term, the challenges they face today still relate to their ability to remain productive and profitable. By all accounts, last year was one of the most difficult on record for insolvencies as a combination of high interest rates, soaring inflation and operational costs weighed down on company overheads.
"But despite these odds, 83% of SMEs we surveyed said they remain optimistic about the future of their business."
