The United Kingdom's inflation rate has been on a steady rise, reaching 2.6% in November 2024, up from 2.3% in October and 1.7% in September. This increase has put significant pressure on the Bank of England's Monetary Policy Committee (MPC) as they strive to meet their target inflation rate of 2.0%. The MPC's decisions on interest rates are crucial, as they directly impact borrowing costs for consumers and businesses, including mortgages and remortgages.

In August 2024, the MPC reduced the base interest rate from 5.25% to 5.0%, followed by another 0.25% cut in November to the current rate of 4.75%. However, the December 2024 MPC meeting saw a majority vote to keep the rate steady at 4.75%, with six members voting for a hold and three advocating for a further cut. This decision was influenced by the rising inflation and the need to ensure it returns to the target level on a sustained basis.

The upcoming February 2025 MPC meeting will be critical, as the committee will review the latest inflation data and economic indicators. With holiday shopping boosting spending in December, the January inflation report is unlikely to show a significant reversal of the inflation growth that held the rate steady in December. This means the MPC will have to carefully consider whether to lower the base rate or maintain the current stance. Luckily for borrowers, the increase in inflation is not considered to be a lengthy issue, and therefore there is little cause for concern of a vote by the MPC to increase the base rate, at least for now.

The impact of the MPC's decisions on interest rates is far-reaching. When the base rate is lowered, lenders typically follow suit by reducing their interest rates on mortgages and remortgages. This makes borrowing cheaper for homeowners and potential buyers, encouraging spending and investment in the housing market. Conversely, higher interest rates increase borrowing costs, which can dampen consumer spending and slow down economic growth. For home buyers it could be the primary factor for pricing them out of the housing market.

Recent reports indicate that homeowners have been taking advantage of the current lower rates by opting for five-year fixed-rate deals, which offer savings opportunities and peace of mind with longer terms. This trend suggests that many are looking to lock in the current attractive rates before any loss of economic confidence by lenders if the MPC holds the rate steady for a long period of time.

The MPC's cautious approach to easing monetary policy is driven by the need to balance inflation control with economic growth. While some members of the committee are concerned about the stagnating economy and weakening job market, others believe that maintaining higher interest rates is necessary to keep inflation in check. The differing decisions in the December meeting reflects these opposing views and the complexity of the economic situation.

As the February 2025 meeting approaches, the MPC will have to weigh the latest economic data and projections to make an informed decision on interest rates. The outcome will have significant implications for homeowners and home buyers, as well as the broader economy. With the current rates considered attractive, many are likely to continue seeking borrowing opportunities now, but the uncertainty surrounding future rate changes adds a layer of complexity to financial planning.

The UK's rising inflation and the MPC's response to it are shaping the economic landscape in significant ways for the coming year. The decisions made in the upcoming February meeting will be crucial in determining the direction of interest rates and their impact on mortgages and remortgages. Homeowners and potential buyers should stay informed and consider their options carefully as they navigate the evolving economic environment.