The Bank of England’s Monetary Policy Committee (MPC) is expected to hold rates at 5.25% next week, for the fourth consecutive time.
Expects are mostly predicting that the first base rate cut could come in May, despite inflation rising slightly in December.
Experts at Hargreaves Lansdown reckon some committee members could vote for a rate cut this month – but the votes won’t be enough to sway the majority decision from a hold on rates.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “With inflation ticking back up in December, it’s likely to have quelled immediate urges from policymakers around the table for rate cuts any time soon.
“Given the ultra-cautious stance three of the nine members of the MPC have taken towards inflationary risks, having voted for a rate hike at the last meeting, the chances of a reduction in the base rate at this gathering look very slim indeed.”
Reports show that business activity has had a spring in its step since the start of the year, adding to hopes of resilience ahead and dimming recession fears.
‘No chance’ of base rate cut in February
Meanwhile, a Reuters poll showed economists saw no chance of a rate cut on 1 February, but a slim majority expected one before mid-2024.
Investors are betting that the bank will start cutting the base rate as early as May, with three more cuts over 2024 taking it to 4.25% from 5.25% now.
Sanjay Raja, a Deutsche Bank economist, said: “Big picture, we think lots will need to go right to give the MPC enough confidence to adjust bank rate lower from Q2 24 onwards.
“But given downside misses to GDP growth, private-sector pay momentum and services CPI in recent months, we continue to think that rate cuts remain firmly in play from May.”
Capital Economics has “penciled in” the first rate cut for June and predicted that rates will fall to 3% in 2025 rather than to 3.50 or 3.75% as priced into the market.
What will a rate hold mean for savers and borrowers?
Savings rates have continued to drop in expectation of a rate cut in the next few months. The best one-year fixed rate savings deal has now dropped below the best variable one, as banks price in the rate cuts they’re expecting.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “If you don’t need the cash for a year or more, you may be tempted to hold it in a variable rate account for a higher return in the short term. However, in the coming months, there’s a very high chance that rates will fall, so if you don’t need the cash right now, fixing and guaranteeing the return for a year or more may well prove more rewarding.
“These fixed rates have fallen, but there are still plenty of deals over one and two years offering more than 5% right now, so there are great rates worth snapping up while you can.
Competition in the mortgage market remains fierce. Mortgage rates have fallen significantly from a recent peak for the average two-year rate of 6.85% at the start of August 2023, to 5.58%. A major chunk of the drop has taken place over the past month, when average two-year rates fell almost half a percentage point, according to Moneyfacts.
Coles said: “December’s bump in inflation dented market confidence about the number of rate cuts that could be on the cards for 2024, and there has been a muted reaction in the mortgage market, most strikingly Santander’s decision raise rates 0.2 percentage points.
“If you have a remortgage looming, or you’re planning to buy, and this has struck fear into your heart, then the good news is that this isn’t expected to be enormously widespread, and the general direction of travel for rates in the coming months is still likely to be downwards. The Santander announcement came sandwiched between cuts from Barclays and Nationwide, so it’s the exception to the rule right now.”
