Hopes for further rate cuts fade after deadlock at Bank: Borrowing costs and pound surge following split vote
The central bank cut rates by 0.25 percentage points to 4 per cent yesterday, their lowest level in over two years.
The cut followed a dramatic meeting of the Bank's nine-member Monetary Policy Committee (MPC), which for the first time had to vote twice on how fast to slash borrowing costs after a three-way deadlock.
While the reduction in rates was good news for mortgage holders and other borrowers, economists said the Bank was likely to hold off cutting rates again this year to keep a lid on inflation.
That is expected to peak at 4 per cent next month, up from previous forecasts of 3.5 per cent and more than double the Bank's target of 2 per cent.
Andrew Wishart, senior UK economist at investment bank Berenberg, highlighted that markets were pricing in a 72 per cent chance of another cut before the end of 2025, down from 100 per cent before yesterday's decision.
Predictions of rates staying higher for longer sent the pound up 0.5 per cent against the dollar to $1.34.
Interest rates on two-year UK government debt, which is sensitive to changes in interest rates, climbed higher as investors priced in a slower reduction than before.
Prospects of further cuts this year were dampened after Bank of England governor Andrew Bailey cautioned that subsequent rate cuts must be done 'gradually and carefully'.
The warning came as the MPC said rising prices are being driven in part by Chancellor Rachel Reeves's National Insurance Contributions hike and inflation-busting minimum wage increases.
Stubborn inflation increased uncertainty over the pace of future interest rate cuts after the MPC was trapped in a three-way split on the decision.
Four members including Bailey voted to cut borrowing costs by 0.25 per cent to 4 per cent and four wanted to hold rates at 4.25 per cent.
One member, Alan Taylor, voted to cut rates faster, by 0.5 percentage points to 3.75 per cent.
For the historic second poll, Taylor backed a 0.25 percentage point cut to break the deadlock.
Bailey said: 'We've cut interest rates but it was a finely balanced decision. Interest rates are still on a downward path but any future rate cuts will need to be made gradually and carefully.'
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'Stellantis must urgently confirm it will pay compensation for alternative transport as well as offer practical solutions such as offering at-home repairs or towing affected cars to garages. 'If not, many people will see no alternative but to continue driving cars that are potentially very dangerous. 'The government needs to step in and hold them to account to ensure UK consumers have much greater clarity of what they need to do and what they are entitled to - and are never left in this position again.' The consumer group has called on Stellantis to immediately address its helpline issues, confirm a formal compensation scheme and provide practical solutions including courtesy cars, at-home repairs, or collection options, so that unsafe cars can be fixed without the risk of being driven. It has also written to the DVSA and the Department for Transport (DFT) to outline its concerns and request they step in to provide greater oversight of Stellantis' handling of the situation. A Stellantis spokesperson said: 'The company's focus remains on completing the replacement of airbags in affected vehicles as swiftly as possible. 'Our Citroen network is fully engaged in maximising the number of cars that can be completed every day and, to increase our repair capacity even further and minimise as much as possible the impact on customers, our Peugeot network is now authorised to replace airbags on these cars in addition to at home options. 'For each and every customer, we discuss options to support mobility, recognising that every driver has specific requirements. These options include replacement airbags at a dealership or at home, courtesy car, support for other mobility options and recovery. We give priority to those with the most urgent needs.' A DVSA spokesperson also commented: 'We are working with Citroen to make sure that everyone with these vehicles knows that they can't use this model of car until the necessary repair work has been carried out.' A Department for Transport spokesperson added: 'We understand how frustrating these recalls are for those affected. 'The safety of those drivers and their families remains the Transport Secretary's top priority. She and the Future of Roads Minister are actively engaging with manufacturers and industry leaders to ensure any disruption is kept to an absolute minimum.'
