Bank of England interest rate cut 'unlikely' next week as expert makes 2025 prediction

The Bank of England is expected to maintain the UK’s base interest rate at 4.75 per cent when policymakers meet next week.

Economists have previously hinted there could be signs of another cut on the horizon, but predictions now suggest rates will be held. The next decision will be made on Thursday, December 19.

Interest rates, which influence the cost of loans and mortgages, have been kept high in recent years to try and curb inflation.

READ MORE: British Gas customers who act before Sunday can get half price bills over Christmas

The inflation rate dipped below the Bank's 2 per cent target earlier this year, allowing rate cuts in August and November. However, inflation surged to 2.3 per cent in October - the biggest rise in two years.

The uptick in inflation was widely expected because of rising energy bills, but the increase was still more acute than most people had forecast. It has dampened the few remaining hopes that policymakers might vote for one more rate cut this year.

Financial analyst Michael Hewson said the rise was "an uncomfortable reminder that UK inflation always tends to be stickier than many would like".

The recent Labour Budget introduced new tax increases for businesses, including higher national insurance contributions (NICs). Some financial experts suggest the tax hikes could further fuel inflationary pressures.

Andrew Bailey, Governor of the Bank of England, has highlighted that the impact of the National Insurance Contributions (NICs) increase on the economy remains uncertain, but it stands as the "biggest issue" following the Budget. He has consistently advocated for a cautious approach to reducing interest rates at previous meetings.

One complicating factor for policymakers is that gross domestic product (GDP), the main measure of economic growth, fell slightly in October. Higher interest rates tend to hamper GDP, meaning the contraction could make some of the Bank’s nine members of the Monetary Policy Committee more inclined to vote for a rate cut in December.

But economists have said the contraction in October GDP was down to people taking a wait-and-see approach ahead of the Budget policy decisions at the end of that month, and that growth would pick up again.

Thomas Pugh, an economist at the consultancy RSM, said it is unlikely the committee will make any change to its gradual approach. He said: "Ultimately, that means mortgage holders won’t be getting an early Christmas present from the BoE this year."

Looking towards the new year, Mr Pugh made a prediction about what would happen with interest rates in 2025. He said: "We expect four cuts in 2025, meaning rates will finish the year at around 3.75 per cent, but the risks are weighted towards fewer rate cuts."