The Bank of England (BofE) has opted to hold base rates at 5.25 per cent for the third month in a row.

At its latest meeting, the BofE Monetary Policy Committee (MPC) voted by a majority of six to three in favour of maintaining interest rates at 5.25 per cent, the highest level in 15 years.

The MPC was split again though, as three committee members voted for a 0.25 per cent increase, which would have taken interest rates to 5.5 per cent.

This marks the third month that the committee has opted to hold base rates as part of its efforts to bring inflation back to its 2 per cent target, with the pause in interest hikes in October ending a run of 14 successive base rate increases.

Confirming the latest base rates, the BofE said that CPI inflation is expected to “remain near to its current rate around the turn of the year”, while the near-term path for CPI inflation is somewhat lower than projected in November, in part reflecting recent declines in energy prices.

However, the MPC noted that while CPI inflation has fallen back broadly as expected following its previous decisions, key indicators of UK inflation persistence remain elevated.

"As anticipated, tighter monetary policy is leading to a looser labour market and is weighing on activity in the real economy more generally," it stated.

"Given the significant increase in bank rate since the start of this tightening cycle, the current monetary policy stance is restrictive."

The MPC said that it would continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation.

However, it suggested that monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2 per cent target sustainably in the medium term, and monetary policy is likely to need to be restrictive for an extended period of time.

The latest rate decision is expected to bring some welcome stability for pension savers and retirees alike, according to PensionBee director of public affairs, Becky O'Connor, who said:
"For those approaching or in retirement who have found managing their retirement and withdrawal plans stressful because of market ups and downs, this stability in monetary policy direction might offer some respite.

"Higher for longer interest rates, combined with a healthier and less volatile global stock market presents savers with a broader menu of options for how to grow their money over the long-term.

"For people with retirement money tied up in savings, it will be important to keep chasing decent rates, as high-paying accounts may not hang around for long. This is particularly pertinent as previous PensionBee research found that half of retirees could be losing out due to low interest rate deals.”

However, the outlook ahead remains less certain, as LCP investment partner, Paul Gibney, argued that if and when the bank feels able to start cutting rates will be the "big question" for 2024.

"Clearly, while inflation remains on a downward trajectory, MPC members believe more evidence of economic softening is needed before any monetary easing is warranted," he continued.

"Wednesday’s surprise announcement that the UK economy had contracted in October was not enough to tip the balance in favour of lower rates.

“While the slowdown may have brought forward the timing of rate cuts, market expectations remain that the Bank of England will cut rates later and more slowly than other major developed market central banks, given the more persistent pricing pressures that the UK economy faces.

"Exactly when that process starts has no doubt been further complicated by the US Fed’s indication in its post-meeting conference yesterday that it is likely to start cutting rates next year sooner than had previously seemed likely.“

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