After the Bank of England kept interest rates unchanged on Thursday, investment managers discuss the impact.

The Bank of England (BoE) held interest rates at 5.25 per cent on Thursday for the third time in a row, the highest level in 15 years.

Six members of the Monetary Policy Committee (MPC) voted to hold rates steady, whilst the other three preferred to raise rates by 0.25 per cent to 5.5 per cent, to tackle inflation.

UK headline inflation currently stands at 4.6 per cent, after it dropped by more than expected, mainly due to lower energy prices. The longer-term target is 2 per cent by the end of 2025. See more coverage here. 

The market was expecting interest rates to remain unchanged prior to the announcement. We’ve come a long way in bringing down inflation this year, but there is “still some way to go,” BoE governor Andrew Bailey said.

Here are some reactions from wealth managers to the rate decision.

Jamie Niven, senior fund manager, Candriam
“The Bank of England MPC statement was more in line with what the market was expecting from central banks this week with acknowledgement on progress in fighting inflation but reticence to declare victory. While they continue to maintain that policy will need to remain restrictive, we don’t think that precludes cuts in coming quarters. In fact, significant cuts would still see monetary policy remaining in restrictive territory from our perspective. With deterioration in UK data recently and the pivot by the Fed overnight, we fully expect the Bank of England to start cutting around the same time and, given current pricing, should result in outperformance of the UK front end next year.”

Michael Metcalfe, head of macro strategy, State Street Global Markets
“The BoE may face a much weaker growth outlook than the Fed, but they have been unable to drop their tightening bias in November. Three members still voted for an immediate hike and the decision to hold or hike rates remains finely balanced. Clearly, the BoE needs to see greater progress on inflation to effectively signal that rates have finally peaked. With the BoE potentially lagging rate cuts elsewhere early next year, this will provide further impetus for asset managers to continue to eliminate their still sizeable sterling underweight.”

Antony Antoniou, CEO of Robert Irving Burns (RIB), an investment and property consultancy
“It’s not just interest rates on hold, but people’s lives that are on hold. There are 1.5 million households who will come to the end of their fixed rate mortgage deals in 2024, not to mention would-be first-time buyers. All of whom are putting off a move or having to adjust expectations due to the record high rates, with potentially disastrous ripple effects on the UK economy. Ours is the only central bank in the western world which is going to wait until the economy goes into recession, now predicted for the first three quarters next year, before considering a cut. What business would want to invest or grow in these hostile conditions?”

Nicholas Hyett, investment manager, Wealth Club
“The markets had hoped that Bank Governor Andrew Bailey would put a festive twist on his “sexy turtle” nickname with a dovish set of minutes accompanying the decision to hold rates flat in December. But there’s no “sexy turtle dove” in the pear tree this Christmas. A minority of MPC members voted to raise rates again, despite a slowdown in economic growth and weakening labour markets, with the minutes flagging geopolitical risks and potential for further wage growth. Government bond yields have ticked up and the UK stock market has slipped as a result.”

Jonny Black, chief commercial and strategy officer, abrdn advisor 
“The Bank of England has been clear that it doesn’t plan to drop interest rates until the risk of inflation resurging has passed. Today’s ‘hold’ decision shows that it feels now is still too soon to do this. It’s not clear when rate reductions will come – new forecasts released earlier this week suggest it could not be until 2026. Clients will value reassurance that their savings and investment strategies are adapted to deliver good outcomes for them given under current conditions, and that their advisors are on hand to help them make changes to their strategies should circumstances change quickly in the future.”

Julian Jessop, economics fellow at free market think tank, the Institute of Economic Affairs
"The Bank of England’s decision to keep interest rates on hold, despite the rising risks of a recession, is not completely bonkers. The Monetary Policy Committee’s job is to worry about inflation, not growth, and inflation is still well above its 2 per cent target. Nonetheless, there is a clear risk that the Bank will keep rates higher for longer than is either necessary or desirable. Almost every leading indicator of inflation is pointing firmly downwards, including money and credit, producer prices, and global energy costs.

"The MPC’s fears about a ‘wage-price spiral’ are also overdone. In reality, wages are only catching up with prices, and there is already evidence that pay pressures are easing. Unfortunately, the Bank currently lacks the confidence or the credibility to cut interest rates until it is certain that inflation is back under control. By then, it may be too late to prevent a prolonged slump. Hopefully the markets will force the Bank's hand. Indeed, bond yields and mortgage costs are already falling as investors anticipate rate cuts from other central banks, led by the US Fed."

Amanda Aumonier, head of mortgage operations, Better.co.uk 
“It’s been a tumultuous year for homeowners, we saw remortgage fixed rates surging post the disastrous mini-budget last year and then peaking around 6.16 per cent during August due to base rate hikes. Fortunately, recent positive inflation data means that the Bank of England has maintained the base rate, offering a small silver lining for homeowners. Precise predictions for 2024 are difficult without a crystal ball because they will depend on inflation trends. Should the current downward trend persist, variable-rate mortgage holders might want to explore fixed-rate options. The fact remains that homeowners approaching the end of their fixed deals are going to have to dig deep to cover the higher cost of their mortgage repayments, with the average two-year fixed rate twice what it was this time two years ago.”