The decision was never in doubt that the Bank of England would hold interest rates at 4.75%, but the manner in which it was reached has raised some eyebrows – and hopes – for 2025.
The fact that a third of the Monetary Policy Committee voted for an immediate rate cut suggests that several of the Bankโs decision-makers are more concerned by underlying economic issues than the jump in consumer inflation revealed yesterday.
The surprise surge in wage inflation, rather than the jump in CPI to 2.6% – which had been widely expected – had caused some consternation on the swaps market, which determines mortgage interest rates more directly than the Bankโs base rate decisions.
But the minutes published alongside todayโs decision should provide some rays of hope that the next Base Rate cut may be nearer than the markets are currently forecasting.
Rather than just making the three base rate cuts currently priced into the swap curves, if economic conditions prevail the Bank may be prepared to cut faster and deeper in 2025
Despite the current backdrop of rising swap rates, we can expect to see some frenzied competition between mortgage lenders in January. The first weeks of the year are traditionally an important time for lenders, with many slicing into their margins to offer lower interest rates in a bid to win new customers.
While the Base Rate has only been cut twice in 2024, the prospect of three or more reductions in 2025 will embolden lenders to price very competitively at the start of the year as they battle for market share.
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