On Thursday the Bank of England’s Monetary Policy Committee (MPC) has announced they will keep interest rates at 4.75%, in yet another blow for Labour.
On Wednesday official figures released shows inflation rose in November and the consumer prices index increased by 2.6% year-on-year, up from 2.3% the previous month, this is above the BoE’s 2% target.
Rob Morgan, Chief Investment Analyst at Charles Stanley said the bank is now “wary of loosening too much too soon.”
“Especially now fiscal policies revealed in the Budget could add fuel to the inflationary fire into the New Year.
“The additional costs for employers in the form of higher National Insurance and minimum wage rises looks set to reinforce the trend of escalating costs in the services sector.
“Although employers might take some of the hit with lower corporate margins, much of the impact could take the form of higher consumer prices.”
Lily Megson, Policy Director at My Pension Expert, said: “The decision to hold the base rate comes as no surprise following consecutive months of rising inflation. So, where does that leave us as the year comes to an end? Undoubtedly, the economic landscape is a lot more predictable than 12 months, but it’s not without challenges. Inflation is proving sticky, and while the base rate is predicted to drop throughout 2025, the Bank of England will not rush these decisions.
“Savers, especially those nearing retirement, will need to look to the year ahead and factor in shifting interest rates as they pursue their financial goals. Taking advantage of higher interest rates in the short-term will likely be on some people’s agenda, while others will be considering longer-term options for building their pension pots. Crucially, however, these are not decisions they should have to make alone.
“Consumers should not be left exposed to changing macroeconomic headwinds. Instead, the government must step up to ensure people are supported in their financial planning by delivering better access to financial support, education, guidance and advice.
“In 2025, independent financial advice will remain essential for millions of people, but policymakers have a key role to play in encouraging the UK public to engage with their retirement plans, and ultimately empowering people to achieve their financial goals.”
Ben Nichols, Managing Director at RAW Capital Partners, said: “No early Christmas present, but a cut was largely out of the question given the ongoing inflationary concerns. Fortunately, the outlook for further rate cuts in 2025 is far more promising. Governor Bailey recently suggested that the MPC is preparing to implement up to four reductions to the base rate next year.
“Given that inflation is unlikely to rise as sharply or for as long as it did two years ago, another rate cut could be on the cards as early as February, which would provide the property market with a welcome shot in the arm.
“That said, higher borrowing costs will naturally weigh on property investors’ minds, even if underlying data relating to buyer demand and transaction levels is positive. Therefore, the onus remains on lenders and brokers to better support borrowers as they wait for the Bank of England to relax the monetary policy environment.
“I expect that flexible financial products, firm commitments, and transparent communication will continue to be vital qualities for lenders to provide in the months ahead as a result.”