In a pivotal decision on December 18, the Bank of England’s Monetary Policy Committee (MPC) voted 6–3 to keep the base interest rate steady at 4.75%. This marks a notable pause in its earlier trend of monetary easing, which had seen three consecutive rate cuts. The committee’s latest stance underscores growing concern over renewed inflationary pressures, which threaten to derail efforts to stimulate the UK economy.
Consumer price inflation, which stood at 1.7% in September, has surged to 2.6% by November. This unexpected climb has been attributed to several factors, including the impact of fiscal tightening announced in the autumn Budget, which reduced household disposable income and triggered cost-push inflationary effects. The MPC warned of potential “medium-term risks,” noting that while inflation remains below its long-term average, the current uptick limits its ability to reduce rates further.
The Bank of England is now caught in a delicate balancing act: fighting inflation without stifling already sluggish economic growth. Economic indicators have shown weak expansion in recent months, and business investment remains tepid. Consumer confidence, too, is under pressure as higher borrowing costs weigh on household finances. As a result, markets have recalibrated their expectations, with analysts now predicting a more gradual and cautious pace of rate cuts in the coming quarters.
The committee’s decision also sends a signal to financial markets and institutions: monetary policy will remain data-driven, with inflation trends playing a decisive role in future rate decisions. For borrowers, this means prolonged exposure to elevated lending costs, affecting mortgages, credit lines, and business financing. Meanwhile, savers may find some relief in continued attractive deposit rates.
In the energy sector, UK day-ahead gas prices saw significant volatility during the week. Prices spiked early, peaking at 119.10 pence per therm on December 30 due to a sudden drop in temperatures that boosted heating demand. However, this surge proved short-lived as milder weather patterns returned, and increased deliveries of liquefied natural gas (LNG) from overseas, coupled with strong Norwegian supply, helped ease market pressures. This restored a degree of equilibrium to gas pricing and provided some relief to energy-intensive businesses and consumers bracing for high winter bills.
Overall, the Bank of England’s move to hold rates steady reflects a cautious, measured approach to managing complex macroeconomic dynamics. With inflation reemerging and economic momentum weak, the path forward for UK monetary policy is expected to remain uncertain and closely tied to evolving data.