The Bank of England’s Monetary Policy Committee (MPC) will meet for the first time in 2024 on Thursday. The 1 February meeting will be watched closely by experts, lenders, and borrowers with most expecting a majority vote to hold the rate steady. It would mark the fourth consecutive meeting for the rate to stay at 5.25%. The minutes will reveal how many of the committee made up the majority of the vote. A few distractors from holding the rate steady will likely be a vote for a hike versus a cut to the current rate.

However, there is always the possibility of a surprise move from the MPC. Despite a slight 0.1% increase in the UK inflation rate, the MPC could feel confident the 2.0% target rate of inflation is within reach and offer concession to the many calling for a rate cut to offer relief to borrowers.

The increase in the inflation rate took it from 3.9% to 4.0% in December. While it could be easy to overlook the minimal amount, the MPC has been assertive in their efforts to bring inflation under control. At 4.0%, and two times the target rate, it could cause the MPC to make an increase if only briefly to the rate to correct the direction of inflation and offer a hard knock to it.

Afterall, the increase in the Bank’s standard base interest rate is meant to slow spending and bring inflation down. Yet, the competitive market in lending has given rise to a boost in the housing market which could indicate inflation may not be entirely tamed by the current rate. Perhaps a rate slightly higher is needed to curb spending, control inflation, and bump it down by more than the last increase that occurred.

It would be a bold move by the MPC, but they have warned that they expect the path to target to likely be long and could involve rate hikes. Rather than hold the rate steady and see inflation remain unmoved or even travel upwards, the committee could wish to escape the wait and see outcome for a more decisive one and vote to hike the rate.

The last time the rate was changed by a MPC vote was in August 2023. The next three meetings of the rate setters, held in September, November, and December left the rate unchanged in the hopes it had reached its peak. 

The strong decline to a rate of 3.9% in November spurred optimism in the economy. Lenders, feeling less risk in lending, began to lower their rates without any change to the base rate by the MPC. The attempt to gain the attention of borrowers worked and more lenders began lowering their interest rates. A competitive lending market developed, and some offers fell below the Bank’s base rate.

Not long after the inflation rate data was released revealing an increase, lenders began to pull their lowest rates. 

There are many arguments for the rate to stay, rise, or even for a cut, and it can only be guessed as to the result until the actual meeting. While most would expect the rate to hold, there are those warning a rate hike might occur if the MPC fears another inflation rate increase no matter how small.

If the rate holds steady, it does not mean that lenders will cease to pull their lowest rates, especially those under or close to the base rate. This is why experts have warned borrowers, especially homeowners in need of a remortgage, to shop the current deals and not expect them to stick around. What is on the market or new to the market today could leave tomorrow. 

Perhaps the fact there was not a MPC meeting in January makes the outcome of this week’s meeting more of an unknown despite the expectations and forecasts. The MPC has surprised before, and their goal of keeping inflation under control and bringing it to target could motivate them to raise the rate to curb spending. Yet, the next meeting in March offers the opportunity to make a strong correction if needed should they hold the rate steady in February. 

The MPC meeting will have an impact on the economy, and quickly cause a shift in lending and borrowing. For those interested in borrowing, much will be learned this week to help in creating a strategy to take advantage of the opportunities created by this week’s vote.