The Bank of England held interest rates steady at 4.75% on Thursday, a move that may delay further rate cuts. Economists and traders now predict the next rate reduction could come as early as February.

This decision keeps rates at their highest level since the financial crisis. Henry Knight, managing director of Springtide Capital Mortgage Brokers, noted that forecasts for 2025 indicate a downward trend, with the base rate potentially dropping to around 3.5%. This would likely lead to lower mortgage rates, benefiting both new buyers and those looking to refinance.

Impacts on Mortgage Borrowers

For borrowers, the Bank’s decision means a longer wait for cheaper mortgage rates, with the possibility of fluctuating rates in the meantime. While mortgage rates are based on bank's base rate, they also depend on competition and demand among lenders. Currently, the best five-year fixed mortgage with a 25% deposit is offered by NatWest at 4.18%, while Santander offers the best two-year deal at 4.29%.

Inflation and Wage Growth Pressures

Higher interest rates are a key tool for controlling inflation, as they encourage families to spend less and curb rising prices. However, inflation remains under pressure due to increasing wages. According to recent data from the Office for National Statistics, pay growth reached 5.2%, up from 4.9% three months ago.

Money market traders have adjusted their expectations for rate cuts, now forecasting a potential reduction in May if no change occurs in February.