The Bank tends to cut interest rates when it becomes confident that inflation is returning sustainably to its 2 per cent target, but has admitted that the impact of the Budget – along with trade policy uncertainty and geopolitical tensions – remains unclear.
Experts have said that at the moment, this leaves it hard to say when interest rates will first be cut, leaving the 1.8m mortgage holders set to come off fixed rates in 2025 in limbo.
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Read MoreThe Bank of England held interest rates at 4.75 per cent at its latest meeting on Thursday, but against expectations, three of the nine-strong Monetary Policy Committee (MPC) voted to reduce rates.
Labour confirmed at the Budget it will increase NI payments by 1.2 percentage points for employers, from 13.8 per cent to 15 per cent. There will also be a significant reduction in the secondary earnings threshold at which employers start making NI contributions. This will fall from its current level of £9,100 to £5,000.
The Bank said in its notes: “There remained significant uncertainty around how the economy might respond to higher overall costs of employment, including from the increase in employer national insurance contributions and the National Living Wage.”
The base rate has been held at 4.75% as was widely expected
And it said incoming data “would help to clarify the potential trade-off between more persistent inflationary pressures and greater weakness in output and employment”.
“More broadly, the MPC is once again dealing with the dreaded trade-off between weak growth and rising inflation.”
“If you have something that you know will be bad, you can respond, if you don’t know what the outcome will be, it’s more challenging.”
He added: “November GDP and the next labour market release, published in January, along with the Bank of England’s pay settlements survey published in the February Monetary Policy Report could offer enough information, so a February rate cut still looks more likely than not to us. But it is far from a slam dunk.”
Many of those on fixed mortgages will still be moving onto deals higher than their existing ones, especially if they fixed a couple of years ago when rates were as low as one per cent.
The current average two year fix is 5.46 per cent while the average five year is 5.23 per cent.
These people tend to be paying more with the average standard variable rate as of 1 December coming in at 7.85 per cent.
The Government also said one of its key missions was achieving the highest “sustained” growth among the G7 group of countries, made up of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.
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