The Bank of England kept interest rates on hold at 3.75% yesterday in a closely divided vote as policymakers signalled that further cuts are likely but stopped short of easing amid lingering concerns over inflation persistence.
Property Soup reported yesterday that a cut was unlikely. The Monetary Policy Committee voted 5–4 to maintain Bank Rate, with four members backing an immediate quarter-point reduction to 3.5%.
The decision reflects growing confidence that inflationary pressures are easing, counterbalanced by caution over whether the slowdown will prove durable.
Consumer price inflation has fallen from 3.8% in September to 3.4% in December and is expected to return to the 2% from April.
LOWER ENERGY PRICES
The Bank said the improvement was driven largely by lower energy prices, including the impact of measures announced in Budget 2025, with additional downward pressure from easing wage growth and softer services inflation.
The Bank said that monetary policy has already become significantly less restrictive, with rates cut by 150 basis points since August 2024. While the risk of inflation proving more persistent has diminished, policymakers highlighted increasing downside risks from weak demand and a loosening labour market.
Unemployment has risen to just over 5%, while economic growth remains below estimates of potential. The Bank’s central forecast now assumes a wider output gap than previously expected, reflecting subdued household spending and a cautious outlook for business demand.
MORE EVIDENCE NEEDED
Despite this, the majority of the committee argued that more evidence was needed before cutting rates again.
They pointed to uncertainty over how quickly falling headline inflation would feed through into wage settlements and price-setting behaviour, and warned that easing too soon could risk inflation settling above target in the medium term.
Those voting for an immediate cut said policy remained overly restrictive given the scale of labour market slack and the prospect of inflation undershooting the target without further easing. Several members judged that wage growth was now close to levels consistent with the inflation target and that expectations would normalise as inflation falls.
The Bank said future decisions would depend on incoming data, adding that further reductions in Bank Rate were likely but that the timing and pace of easing would be a “closer call” as policymakers balance competing risks.
INDUSTRY REACTION
Nick Leeming, Chairman of Jackson-Stops, says: “The decision to hold interest rates came as no surprise. Two consecutive cuts would have been unusual given the Bank of England’s cautious approach amid rising inflation, which unexpectedly climbed to 3.4% last month.
“December’s rate cut was the latest in a series of reductions last year, reflecting the MPC’s careful balancing act between slow economic growth, high wages and rising unemployment
“For homeowners coming off fixed-term mortgages this year, this stability offers some certainty around borrowing costs, although rates still remain higher than a few years ago.
“From a market fluidity perspective, steady interest rates could temper the urgency to move, as affordability pressures persist, but it may also encourage buyers and sellers to plan their next move with confidence that borrowing costs won’t spike immediately.”
WIDELY EXPECTED
Iain McKenzie, CEO of The Guild of Property Professionals, says: “The Bank of England’s decision to hold the base rate at 3.75% came as no surprise.
‘Following the cut in December and with inflation still running hotter than the Bank would like, a pause was widely expected. What’s more important is the direction of travel, and we still expect rates to edge down gradually over the course of the year.
“The market has started the year on a far more stable footing, with buyers returning as confidence improves and mortgage rates settle at levels lower than last year. Intense competition between lenders has been a real positive, expanding mortgage choice and giving buyers greater flexibility.
“This increased choice is particularly beneficial for first-time buyers taking their initial step onto the property ladder.”
“This increased choice is particularly beneficial for first-time buyers taking their initial step onto the property ladder.”
“While affordability remains a stretch for many, lower mortgage rates combined with rising incomes mean mortgage costs as a share of income are at their lowest for several years.
“At the same time, a growing supply of homes is giving buyers more choice and keeping prices in check. This sets the foundations for healthier transaction levels into 2026, provided sellers price realistically and reflect local market conditions.”
CAUTION PREVAILED
Jason Tebb, President of OnTheMarket, says: “As expected, the Bank of England held interest rates at 3.75%. With inflation rising to 3.4% in the year to December, caution prevailed this time around with the rate setters adopting a ‘wait and see’ approach, although the vote was split with four of the nine members voting for a 0.25 percentage point reduction.
“While this will be disappointing for those on variable-rate mortgages, borrowers have benefited from six rate cuts in the past 18 months, giving much-needed impetus to the market.
“Rate cuts send a positive message, helping ease affordability.”
“Rate cuts send a positive message, helping ease affordability and give encouragement to buyers and sellers alike, and this close vote will enable buyers to plan ahead with some confidence.
“Although the year has got off to a good start on the mortgage front with a number of lenders reducing their rates, there has been some upwards pricing in recent days on the back of higher swap rates and expectations that the pace of future rate cuts may be slower.
“That said, mortgage rates are more palatable than they have been in a long while and any further rate reductions this year will give the market an additional boost. With the uncertainty surrounding the Budget having lifted, most of the agents we have spoken to report a better start to this year than Q1 2025.”
GREATER CERTAINTY HELPING
Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, says: “The expectation was that the Monetary Policy Committee would hold rates at 3.75% at this meeting, but what really matters for the property market is the tone rather than the decision itself.
“Markets are already pricing in cuts later in the year, and that shift in sentiment has fed through to mortgage pricing and buyer confidence.
“Even without an immediate cut, greater certainty around the direction of travel is helping buyers re-engage, particularly those who paused decisions last year.”
NO SURPRISE
Jeremy Leaf, north London estate agent and a former RICS Residential Chairman, says: “While the base rate is, of course, important for the direction of travel of housing market activity, we find on the ground that just as vital to buyers and sellers is the ‘steer’ lenders take from that decision.
“We have noticed previously that mortgage rates sometimes harden when the base rate is reduced, head south when it is unchanged – or even increase.
“Following the first rise in inflation for five months in December, it’s no surprise rates have been held this time around but it is worth noting that they are are still at their lowest level in almost three years, which is certainly helping boost buyer and seller confidence.
“We know what homeowners like least is uncertainty and if there is a sense that there is little prospect of a reduction in rates in the near future then some of the early 2026 optimism that we have witnessed in our offices is likely to fizzle out.”
BUYERS UNDETERRED
Tony Gambrill, Regional Sales Director at Chestertons, says: “Buyer activity has strengthened since the beginning of the year, with house hunters continuing their search despite some lenders recently raising mortgage rates.
“While some buyers would have welcomed a cut in interest rates, the majority will remain undeterred and proceed with their property search regardless.”
CONFIDENCE REMAINS HIGH
Guy Gittins, CEO of Foxtons, says: “The decision to hold the base rate is unlikely to disrupt a property market that has, once again, started the year positively.
“With further rate cuts anticipated in 2026, buyer confidence remains high and we’ve seen the expected seasonal uplift in enquiries, viewings booked and offers being made.
“We anticipate this positive momentum from buyers and sellers will be sustained, creating a strong platform for the year ahead.”
STABILITY GIVES BUYERS AND SELLERS CLARITY
Nathan Emerson, CEO of Propertymark, says: “Today’s decision to hold interest rates reflects the Bank of England’s cautious approach in the face of ongoing economic uncertainty.
“While we would ultimately welcome lower borrowing costs, stability at this stage gives buyers and sellers clarity about the cost of borrowing and allows the market to continue adapting.
“For those planning moves, knowing that many mortgage products are unlikely to change in the immediate term can provide space to make informed decisions about house purchases or remortgaging.”
UK IS AN ATTRACTIVE PROPOSITION
Damien Jefferies, Founder of Jefferies London, says: “Today’s decision to hold the base rate bolsters stability for international and high-net-worth buyers who are actively assessing opportunities in the UK market, with consistency in monetary policy helping to reinforce confidence and predictability when allocating capital across global property markets.
“With borrowing costs remaining broadly stable, the UK continues to present an attractive proposition and this should support continued cross-border investment and enables buyers to plan acquisitions with greater certainty over the months ahead.”
BUSINESS REMAINS ROBUST
Marc von Grundherr, Director of Benham and Reeves, says: “The housing market has continued to demonstrate strong levels of activity so far this year, with the December rate cut helping to put homebuyers firmly on the front foot heading into 2026.
“As a result, enquiry levels, viewings, and transaction volumes have remained robust, underpinned by improving confidence and more stable economic conditions, with the decision to hold the base rate unlikely to rock the boat.”
NOT GOING TO DAMPEN ACTIVITY
Verona Frankish, CEO of Yopa, says: “While the decision to hold interest rates may have disappointed those homebuyers hoping for further reductions to mortgage rates, it is unlikely to dampen market activity.
“Many buyers are remaining keen to progress their plans this year having gained confidence from stabilising interest rates over the course of the last year.”
