The Bank of England’s decision to hold interest rates at 4.75% has been met with a range of reactions, particularly given the context in which it was made. While the decision itself was widely expected, the manner in which it was reached has raised eyebrows across the financial sector and sparked hopes for a potential shift in 2025.
A key point of interest is that a third of the Monetary Policy Committee (MPC) members voted for an immediate rate cut, signalling that some decision-makers are more concerned about underlying economic challenges than the recent rise in consumer inflation.
Despite the jump in consumer price inflation (CPI) to 2.6%, which was largely anticipated, the real surprise came from a significant surge in wage inflation.
This unexpected development has caused turbulence in the swaps market, which is more directly linked to mortgage interest rates than the Bank of England’s base rate decisions.
The minutes released alongside the decision suggest that the Bank’s monetary policy might not remain as conservative as initially expected.
There is now a growing belief that should the current economic conditions persist, the Bank could adopt a faster and more aggressive approach to cutting interest rates in 2025 than markets have forecasted.
What does this mean for the housing market?
For homeowners and potential homebuyers, the implications are significant. With rising swap rates, mortgage lenders are likely to engage in more intense competition in the early months of 2025.
Traditionally, the first quarter of the year is crucial for lenders, who often lower their interest rates to attract new customers.
While the Bank of England has only reduced the base rate twice in 2024, the potential for three or more cuts in 2025 means lenders will be emboldened to offer highly competitive rates as they battle for market share.
This could create opportunities for borrowers looking for more favourable mortgage terms, especially early in the year.
Should we be optimistic for 2025?
Although the current economic backdrop remains challenging, the expectation of more rate cuts in 2025 offers a ray of hope.
If the Bank’s minutes are anything to go by, the possibility of deeper and faster cuts next year is becoming increasingly plausible.
For mortgage borrowers, this could mean lower rates and a more competitive market as lenders prepare for what may be a very different interest rate environment in the near future.
While there is still uncertainty surrounding the overall economic conditions, the Bank of England’s decision is being viewed by many as a sign of the potential for positive change, with hopes rising for a more favourable 2025.