The Bank of England has expectantly held interest rates at 3.75% as the rise of inflation to 3.4% in December is 1.4% above the banks 2% target.
Julien Lafargue, chief market strategist at Barclays Private Bank and Wealth Management, said, “The combination of lower inflation ahead and continued softening of the UK labour market should reinforce the central bank’s view that the path for monetary policy is towards a lower Bank rate, potentially as early as next month.”
Hamish Martin, Partner at LAVA Advisory Partners, said: “Today’s result underlines how finely balanced the MPC now is, with a weakening jobs market pulling one way and firmer business activity and inflation pulling the other.
“I imagine businesses and dealmakers are all aware that further cuts are unlikely to be far away, though as long as borrowing costs remain restrictive for leveraged transactions, this will keep pressure on debt-led M&A and stretch deal timelines.
“While improving PMI data suggests underlying momentum, the absence of a clear signal on easing limits confidence. The risk is that policy remains reactive at a time when companies need firmer direction to commit capital and unlock stalled transactions.”
Laurence Booth, Head of Global Capital Markets at CMC Markets, said, “The Bank of England’s decision to hold interest rates has effectively pressed the ‘pause’ button, and is the right call for long-term stability.
“Despite the gradual rate cuts seen last year, the surprise rise in inflation to 3.4% last month appears to have unsettled the more hawkish members of the BoE’s MPC. However, mixed signals from the UK economy suggest further rate cuts are still likely in the coming months.
“By holding steady at 3.75%, the MPC is choosing to buy time, rather than risk reigniting price growth with a premature cut.
“Looking ahead, market focus now turns to the coming months. Sterling is expected to remain sensitive to the Bank’s ‘higher-for-longer’ stance as we look toward April, which now appears to be the next window for the MPC to cut rates.”
Mike Randall, CEO at Simply Asset Finance said, “This rate hold provides some crucial breathing room, helping businesses capitalise on the positive shoots of economic growth we’ve seen in recent weeks.
“Further anticipated rate cuts and cheaper borrowing costs will also help to offset the cost pressures SMEs have been forced to absorb – empowering firms to invest in productivity, rather than simply staying afloat.
“However, with over half of SMEs doubting their loan approval chances, the industry must now help to change SMEs’ perspective on finance. Banks, lenders and brokers must collaborate to ensure businesses know funding is not only accessible to them but guide them on how it can be used effectively to unlock their full potential.”
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