‘Steady as she goes’ BoE decision but ‘aggressive rate-cutting is coming’

This was always going to be a ‘steady as she goes’ decision and the fact the Bank’s ratesetters voted so overwhelmingly to leave the base rate alone shows the strength of their conviction that it’s too soon to cut rates again.

Inflation came back with a bang in January, jumping from 2.5% to 3%, well over the Bank’s 2% target.

With more inflationary pressure coming down the track in April, in the form of a jump in both the minimum wage and the National Insurance contributions employers have to pay, the Bank is concerned about inflation taking off again.

However the inflationary threat could be shortlived, and the mortgage markets are still working on the assumption that as soon as it cools, the Bank will restart its base rate cuts in order to stimulate the UK’s stagnant economy.

The Bank predicts that GDP will grow by a meagre 0.75% in 2025, and with the giant threat of US tariffs still looming, the swap markets’ prediction of two further base rate cuts this year may be undercooking things. The chance of three rate cuts – taking the base rate below 4% by the end of the year – is in our view looking increasingly likely.

For now the waiting game continues, and mortgage interest rates are unlikely to budge in coming days. But after a quiet start to the year, many lenders are itching to lend and there’s likely to be a surge in aggressive rate-cutting in coming months as they fight for market share.