UK interest rates: Pause, but for how long? Experts comment

Global Market Analyst, Lale Akoner’s comment on BoE interest rates

Lale Akoner, Global Market Analyst at eToro says: “The Bank of England has decided to keep rates unchanged, highlighting the challenge of weak jobs data and stubborn inflation pressures. Cutting too soon could lead to higher inflation expectations, while holding too long risks slowing growth further. With household long-term inflation expectations having risen to 3.8% – the highest since 2009 – the Bank remains cautious, sticking to its “gradual and careful” approach. Alongside the no-cut decision, the Bank said that they would slow down the place of their QT, reducing bond sales to £70bn and skewing away from longer-dated gilts.

“For everyday investors, this means savings rates are likely to stay steady for now, but mortgages remain expensive with little relief in sight. Government bond yields may stay high and the pound supported as markets scale back bets on rate cuts. In stocks, defensive sectors like consumer staples and utilities could offer stability against sticky inflation and weaker wage growth.

“Overall, we think the rate relief will come later than hoped. In the meantime, staying diversified and focusing on strong, dividend-paying companies remains a sensible strategy in a higher-for-longer rate environment.”

Bank of England show of independence leaves Chancellor with a headache, says Rathbones

Pressure builds on Chancellor ahead of November budget as rates likely to be held until 2026 – Initial market reactions suggest disappointment around Quantitative Tighening

Commenting, John Wyn-Evans, Head of Market Analysis at Rathbones, says: “The Bank of England’s decision to hold rates at 4% was no surprise. The majority of the Monetary Policy Committee’s members continue to believe that taking the inflation-reducing medicine of higher rates is preferable to discharging the patient early and risking further infection, even if this means reduced levels of activity in the short term. At this meeting, seven members voted for no change, with two voting for another quarter-point cut, very much as expected. Market-based indicators suggest that there will be no rate cut until next year.

“This meeting was another milestone on the road to what is scheduled to be the most important event between now and Christmas, namely the Budget. The government would dearly love to see lower interest rates to stimulate the housing market and consumer demand more generally. However, the Bank of England is displaying its independence at a time when investors are nervous that central banks are at risk of succumbing to control from political leaders, with the battle between the White House and the US Federal Reserve being most critical.

“This leaves Chancellor Rachel Reeves struggling to balance the books, and her task will be made even more difficult should reports that the Office of Budget Responsibility is set to reduce its forecast for the UK’s productivity growth be proved correct.

“With accumulated debt at elevated levels and annual deficits not shrinking fast enough, the government has to issue large amounts of gilts and Treasury bills every year to fund its spending as well as the interest payments on existing debt. Its task in this respect has been made tougher by having to compete with the Bank of England itself which has been reducing the amount of government debt built up on its own books (through past episodes of Quantitative Easing), not only by not replacing maturing gilts but also through active sales. Combined with global pressure on bonds, which has pushed yields on longer-dated issues up to levels not seen for several decades in the UK, the US and Japan, this places an even greater burden on the Chancellor.

“Today, again as investors had been led to believe, the Bank reduced its planned sales in the year ahead from £100bn to £70bn. This is certainly a positive development and relieves some of the supply pressure from the market. Further good news is that the Bank will focus on selling more bonds with shorter maturities and only 20% of sales will be from longer-duration issues with maturities beyond 2055 (versus around a third previously). Initial market reactions, with bond yields marginally higher and sterling a touch weaker, seem to suggest some disappointment that the Bank did not go further with its relaxation of Quantitative Tightening, or perhaps some disappointment that it remains on a ‘gradual and careful’ course when it comes to loosening policy.

“However, initial reactions can often be the result of more extreme pre-event trading positions being unwound, and so we could caution against reading too much into the moves at this stage. But there was certainly nothing immediately evident to worsen sentiment. Today’s news has minimal bearing on shares.”

Ben Thompson, Deputy CEO, Mortgage Advice Bureau: 

“The Bank of England’s decision to hold the base rate at 4% comes as no surprise, aligning with its recent commitment to taking a gradual and cautious approach to future rate cuts. While another cut before the end of the year isn’t off the table, the Monetary Policy Committee’s primary focus remains on getting inflation firmly under control.

“As always, bigger picture thinking is essential. Despite the current stability in interest rates and a wealth of innovative mortgage options, our research indicates that 27% of renters still feel homeownership is a pipedream. In actual fact, taking that first step onto the property ladder may be more achievable than you think. This is where expert guidance can make all the difference: a mortgage broker can help you navigate the market with confidence, and secure a deal that aligns with your financial situation.”