Members of the nine-strong Monetary Policy Committee (MPC) voted five to four in favour of maintaining the rate, which is used to dictate mortgage rates and other borrowing costs, but pointed to a “gradual” easing of rates in the longer term.
The Bank suggested that inflation peaked in September, at 3.8%, and is expected dip over the coming months before settling at the 2% target rate in 2027. It had previously predicted that inflation would peak at 4%.
Andrew Bailey, governor of the Bank of England, said: “We held interest rates at 4% today.
“We still think rates are on a gradual path downwards but we need to be sure that inflation is on track to return to our 2% target before we cut them again.”
Lorna Hopes, mortgage specialist at the chartered financial advisers Smith & Pinching, says it’s disappointing news for millions of mortgage holders: “The voting was on a knife-edge, but the Bank’s decision to hold the base rate unchanged will disappoint the million or so homeowners with a variable rate mortgage. For them, nothing will change – yet.
“But things suddenly look very different for fixed rate mortgages. Competition between lenders had been heating up before today, and the small print behind the Bank’s decision could now light the touchpaper on a fixed rate price war.
“Five of the big six lenders began a pre-emptive paring of their fixed rates last week. This was primarily about mortgage lenders trying to steal a march on each other, and battling for share in a market becalmed by pre-Budget uncertainty.
“But it’s also a reflection of the steady fall in swap rates over the past fortnight.
“Swap rates – which track where the mortgage industry expects interest rates to go in future – have edged down after official data suggested the UK’s inflation problem had peaked.
“The Bank’s ratesetting committee referenced the levelling off in inflation in its minutes, and its increasingly dovish tone means that a further base rate cut by Christmas is now a real possibility. If swap rates continue to fall in response, we could see lenders shaving their fixed rates further in coming weeks.
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“This will be welcome news both for first-time buyers and the thousands of homeowners facing a painful jump in their monthly payments as the fixed rate on their existing mortgage comes to an end.
“Assuming this month’s Budget doesn’t derail things, the market now expects two or possibly three further base rate cuts by the middle of next year. But that is far from certain, and we are already close to the bottom of the interest rate cycle.
“If you have a mortgage with a fixed rate that’s due to expire in the first half of 2026, it’s worth shopping around and talking to a broker now. You can reserve a new rate up to six months before the end of your current deal, and doing so will ensure you don’t lose out if rates start creeping back up in the New Year.”
