The Bank of England chose not to heap more pressure on mortgage holders on Thursday as it kept its interest rate unchanged for the first time in almost two years.
In a close decision, policymakers said they had opted to keep the base rate, which influences how much families need to pay to borrow money, at 5.25 per cent. They also downgraded the outlook for the economy.
Officials still left the door open to further rises in the future, promising to “take the decisions necessary” to return inflation to normal levels.
It is the first time since November 2021 that the Monetary Policy Committee (MPC) has met without deciding to raise interest rates.
Since then, the base rate was increased in 14 consecutive meetings, taking it from 0.1 per cent to 5.25 per cent as the Bank attempted to put a lid on runaway inflation.
Many had expected this week’s meeting to bring the 15th straight rise, and it almost did. Four of the nine-person MPC voted to raise rates to 5.5 per cent.
The MPC also downgraded its forecast for the UK’s economy on Thursday. It now expects gross domestic product (GDP) to rise just 0.1 per cent in the third quarter of this year, compared with the 0.4 per cent rise it forecast in August.
Speculation that the MPC might hold rates grew on Wednesday after the Office for National Statistics (ONS) revealed that consumer prices index (CPI) inflation rose less than expected last month.
The ONS said that inflation was 6.7 per cent in August, down from 6.8 per cent in July. The Bank itself had earlier forecast August inflation at 7.1 per cent.
Nicholas Hyett, Investment Manager at Wealth Club, commented: “After fourteen rate rises on the bounce, and lower than expected inflation, the market had begun to think the run of rate hikes was all over – well it is now.
“The committee was split pretty much down the middle, with five in favour of a hold and four favouring a rise. The vote to trim QE by some 13 per cent will tighten monetary policy a touch, and that may have given some swing voters the space to hold rather than hike.
“From here there’s a strong argument for the Bank taking a prolonged pause. Fixed rate mortgages and a higher proportion of mortgage free owner occupiers mean higher rates don’t feed through to the economy as quickly as they once did, and the full impact of past interest rate hikes hasn’t been felt yet.
Expect the Bank to spend some time sitting back behind the ball and watching what unfolds.”