The Bank of England kept rates at a 16-year high of 5.25%, as expected — but gave little guidance of when they might begin to fall.  

The BoE’s rate-setting Monetary Policy Committee is concerned that there is still enough inflation in the economy, currently at 4%, to prevent rising prices from being pushed down to the central bank’s 2% target.  

The MPC said in the minutes from its meeting: “The committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates.”  

It forecasts that inflation will fall “temporarily” to the 2% target in the second quarter of this year, before increasing again in the second half of the year, largely dictated by fluctuating energy prices.   

The committee predicts that inflation will be 2.3% in two years’ time and 1.9% in three years.  

It adds that “inflation projections are skewed to the upside over the first half of the forecast period, stemming from geopolitical factors”, such as the war in Ukraine and unrest in the Middle East.  

The body voted by a majority of 6–3 to hold bank rate, two members preferred to increase the rate by 0.25 percentage points, to 5.5%, while one member preferred to cut it by 0.25 percentage points, to 5%.  

The move comes after the US Federal Reserve yesterday again kept the target range for its benchmark rate at 5.25% to 5.5%, a 23-year high.  

Fed Chairman Jerome Powell said policymakers did not expect to cut rates in March, as some investors have been betting.   

Powell said the central bank was looking for “greater confidence” that inflation would continue to fall. US inflation is currently 3.3%, while the Fed’s target is 2%.  

In the UK, observers say the fine balance in the economy between falls in inflation in the last year and concerns that Britain could drop into recession is highlighted by rising swap rates.  

Two-year Sonia swap rates were 2.771% yesterday, from 2.678% at the start of the year, according to Chatham Financial. Five-year rates have risen to 2.469% from 2.332% over the same period.  

Stonebridge chief executive Rob Clifford says: “Few will be surprised by the Bank’s decision to keep BBR on hold this month. While swaps have moved back up in the last week or so, the money markets still anticipate the Bank reducing rates throughout the year, with many economists forecasting at least two quarter-point cuts at some point.  

“Mortgage lenders spent the first half of January following each other in repeatedly cutting rates; however, this has slowed recently, and today’s bank rate decision – and the rise with swaps – will mean we see a more consistent and static mortgage rate environment in the weeks ahead.”  

LV= chief investment officer Adam Ruddle adds: “We expect rates will fall from this current peak, but not imminently, and more likely during the middle of the year.   

“High wage growth and inflation due to services remain a concern to the Bank, which will want to see those reduce before interest rate cuts begin.  

“This is not good news for the many that are experiencing squeezed finances and increased cost of living pressures where an early rate cut would have been a welcome surprise.”  

Hargreaves Lansdown head of personal finance Sarah Coles points out: “We had seen rapid falls in mortgage rates from the peak in August. However, as a result of the rejig of expectations, those have slowed significantly, and have barely moved over the past week.   

“The path is still downhill, and we expect cuts to keep coming, but lenders are pausing for breath.”  

Jeremy Leaf, north London estate agent and a former Rics residential chairman says: “Although improving, the property market remains sensitive and fragile. As a result, as important as today’s rate decision itself is the rhetoric around it.  

“Talk is of rates falling during 2024 but by how much, how fast and when? Inflationary pressures are abating, while wholesale energy prices have fallen significantly.   

“The Middle East remains a risk, while the labour market continues to ease and wage growth is projected to decline further in coming months.  

“The question borrowers are weighing up is whether the recent reduction in mortgage rates is just the beginning, or should they wait longer before taking the plunge?”