UK interest rates have been left unchanged at 5.25% by the Bank of England.

The monetary policy committee (MPC) voted by a majority of six to leave rates as they are or the third consecutive month, while three members voted against the hold, preferring an increase of 0.25 percentage points to 5.5%, in a bid to bring down inflation.

The minutes of yesterday’s meeting stated that the Bank’s policymakers would tighten policy further if they saw signs of “more persistent inflationary pressures”.

Money markets are now predicting that Threadneedle Street will reduce interest rates by five quarter-point cuts next year, down from the existing levels to 4%.

But Goldman Sachs (GS) said on Thursday that the base rate will face an even sharper reduction in 2024, down to at least 3.75% by the end of the year.

Industry reaction: 

Jason Tebb, CEO of OnTheMarket, commented: “Holding rates steady yet again will be a relief for buyers and sellers, as they can take this as further confirmation that the base rate has peaked after many months of painful increases, which have stretched affordability and made it harder for buyers and sellers to plan ahead with confidence.

“The question everyone is now asking is: when will the Bank of England start reducing rates? In the meantime, a focused cohort of resilient buyers and sellers are getting on with the business of moving.”

Nick Leeming, chairman of Jackson-Stops, said: “The Bank of England has held firm with the decision, keeping a steady head and refraining from increasing rates, instead opting for a ‘higher for longer’ strategy to continue to drive down inflation. The steadier approach is welcomed by the market, avoiding spikes in payments and giving consumers a clearer pathway to be able to plan accordingly. This comes at a time where the holiday period will put consumer spending into the spotlight, where often affordability will be the lasting remark.

“Currently the market is not expecting a fall in rates for some time, with the Bank of England’s next few moves reliant on the UK economy continuing to avoid a recession. When it comes to property despite challenging headwinds, a resilient labour market and consistent demand has led to a market rebalancing rather than a fall. Positively, the wider property market is set to outperform forecasts from this time a year ago, proving its steadfast resilience once again, despite higher mortgage rates.

“Across our national network of estate agents, we are seeing buyer behaviour being driven by the right property in the right location, more so than any other defining factor. While local nuances are emerging due to supply levels, competition for prime homes that strike the balance between greater space and good connections will continue to drive activity and underline market confidence.”

Matt Smith, Rightmove’s mortgage analyst, said: “The decision to hold the Base Rate as expected is some further good news to those planning a New Year move and looking to take out a mortgage soon. We typically see more people consider their moving plans after Christmas, and after 20 consecutive weeks of steady average mortgage rate falls, this is the most settled mortgage market we’ve seen for a while, giving confidence to those thinking of moving. However, rates do remain at elevated levels.

“The market opinion remains that Base Rate has reached its peak. The fact that swap rates – the underlying cost of mortgages to lenders – fell further after the latest UK GDP data was published yesterday, was another indicator that the markets were confident about how today’s announcement would play out.

“Many of the factors that contributed to the hold in September and November are continuing, and a flattened Base Rate, which could begin to fall in 2024, is looking increasingly likely. Today’s hold could provide some room for lenders to offer further mortgage rate drops – though it’s likely that lenders may hold back offering these to borrowers this side of Christmas, to take advantage of the seasonal jump in demand that usually happens in January”

Frances McDonald, director of research at Savills, commented: “The Bank of England’s decision to hold Bank base rate at 5.25% is likely to bring more confidence to the UK housing market. Over the past year, higher mortgage rates have led to price sensitivity and lower levels of transactions, and a market which had been dominated by cash and equity rich buyers.

“But although it looks as if interest rates have peaked, the first cut still looks someway off. That means heightened affordability pressures are likely to result in further (but more modest) house price falls of -3% in the first half of 2024.

“Savills expects the market to bottom out mid-way through next year as mortgage rates start to ease more significantly in anticipation of a base rate cut later in the year.

“Already we have seen some confidence return. More stability in the mortgage markets led to an improvement in activity levels in November. TwentyCi data for the month suggests that agreed sales (net of fall throughs) are back to within 3% of their pre-pandemic (2017-19) average, having lingered at around -15% below this level for much of the year.”

John Phillips, CEO of Spicerhaart and Just Mortgages, said: “Instead of a cut and an early Christmas present or a rise and becoming the Grinch that stole Christmas, the Bank of England went with the widely expected option of holding rates for the third time in a row. Even with a number of positive indicators, particularly cooling inflation, the bank is still maintaining its position of ‘higher for longer’ – although many are predicting a rate cut early next year.

“Nevertheless, another hold brings continuity and stability and provides an opportunity for lenders to reassess and reprice. It will no doubt add further ammo to the ongoing rate war among lenders – which is great news for borrowers and prospective buyers. We mustn’t forget though that this will still be higher that what many clients perceive as ‘normal’, highlighting the real need for brokers to be proactive in educating clients on the realities of today’s market and what it means for them and individual situation.

“This will continue to be a big focus for the year ahead, as affordability will likely remain a key challenge for many borrowers. There’s no question the successful brokers next year will be those that are getting the fundamentals right, having those deeper conversations and delivering a five-star service and experience – generating referrals and new business in the process. This is particularly pertinent with recent reports suggesting gross mortgage lending could drop in 2024.”

Matt Thompson, head of sales at Chestertons, said: “With interest rates having remained at 5.25% over the past months, buyers have been more comfortable to move forward with their property search. The news that rates remain at this level; and economists predicting a possible reduction in 2024; provides a slightly more favourable market outlook which could see further house hunters deciding to enter the market over the next few months.”

Tom Bill, head of UK residential research at Knight Frank, said: “Downwards pressure on mortgage rates is growing by the day. Despite holding at 5.25% and the Bank of England’s warnings that rates may stay higher for longer, weaker-than-expected wage growth and GDP numbers this week have brought forward expectations for a cut. The five-year swap rate has been trading below 4% today for the first time since April, pointing to a further trimming of mortgage rates. Improving sentiment means transaction volumes in the UK housing market should be stronger over the next six months than the last six, provided a general election is not called in the first half of 2024.”

Guy Gittins, CEO of Foxtons, said: “We’re now seeing clear evidence that the property market has weathered the storm of economic uncertainty this year and is now taking positive steps in the right direction.

“Since the Bank of England first decided to hold rates at 5.25%, mortgage approval numbers have increased, sellers have continued to return to the market and UK house prices have climbed consistently on a month to month basis.

“While hopes of a rate reduction were probably a tad optimistic this side of the Christmas period, a third consecutive decision to keep the base rate held will only add to this growing property market optimism.”