Bank of England expected to hold interest rates at 4.75% in blow for millions of households

With increases in the cost of train travel, petrol, live entertainment, as well as everyday groceries including butter and eggs, analysts at Investec Economics believe financial markets are currently pricing in just a 10 per cent chance of a rate cut.

Last month, the Bank’s Monetary Policy Committee (MPC) cut the Base Rate to 4.75 per cent from five per cent, marking the second reduction of the year.

Andrew Bailey, The Bank’s governor previously indicated rates would likely follow a “downward path”, but stressed any reductions would be gradual.

Rob Morgan, chief investment analyst at Charles Stanley, warns the Bank “will be wary of loosening too much too soon” amid economic uncertainty.

“Especially now fiscal policies revealed in the Budget could add fuel to the inflationary fire into the New Year,” he said.

The latest inflation data makes an immediate rate cut highly unlikely, according to Paul Dales, chief UK economist at Capital Economics.

He said: “There is almost no chance of the Bank of England delivering an early Christmas present with another interest rate cut,” as domestic inflation pressures are stronger than expected.

TotallyMoney CEO Alastair Douglas warns that higher rates are impacting both consumers and businesses.

He said: “Higher rates and higher operating and employment costs are likely to keep driving up prices as firms try to balance their books.”

Douglas calls for better coordination, saying “the Government and the Bank of England must work together” to stimulate the economy.

Capital Economics forecasts inflation will dip in December before rising again in January, but expects it to fall close to the Bank’s two per cent target by the end of 2025.

Households will be hit the hardest from slow interest rate cuts as they face higher mortgage costs, paired with low savings rates.

Borrowers on a typical standard variable rate (SVR) mortgage are paying £366 more per month compared to those on a two-year fixed rate as the average SVR is currently sitting at 7.85 per cent.

The average two-year fixed rate currently stands at 5.52 per cent, while five-year fixed rates average 5.28 per cent.

Rachel Springall, Finance Expert at Moneyfactscompare.co.uk said:: “Mortgage holders will be hoping that the Bank of England base rate will fall further next year,” as millions of borrowers are due to refinance in 2025.

While rates have fallen since January, when the average two-year fix was 5.93 per cent, recent months have seen slight increases, with two-year rates up from 5.39 per cent last month. Ten-year fixed rates now average 5.69 per cent, up from 5.58 per cent in November.

Savers face continued pressure as average rates across savings accounts have declined since the start of 2024.

The average easy access savings rate has fallen below three per cent to 2.96 per cent, marking its largest monthly drop in over four years.

Springall said: “Savers have been hit hard by rate cuts in the aftermath of reductions to the Bank of England base rate this year.”

She warns the decline is particularly concerning for those relying on savings interest to supplement their income.

High street banks offer even lower returns, with an average easy access rate of just 1.79 per cent across major institutions including Barclays, HSBC, and NatWest.

Springall advises savers that “loyalty does not always pay” and encourages switching to secure better returns.