Its Monetary Policy Committee (MPC) decided not to cut the base rate again, a move widely expected by economists.
It previously cut rates from 5 per cent in November, the second reduction of the year.
“Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the two per cent target in the medium term have dissipated further,” the rate-setters said.
“Improving living standards across the country is our number one focus, and is why I chose to protect working people’s pay slips from tax rises, froze fuel duty and increased the national living wage for three million people.”
Higher inflation means prices are rising quicker than otherwise, and this can prompt the Bank of England to keep interest rates higher for longer.
Previously, it was widely thought the next rate cut would come at the first MPC meeting of 2025 in February.
Of six economists polled by The i Paper, three expected four interest rate cuts in 2025, two thought there would be three whilst one more considered there to be two or three.
Pantheon Macroeconomics expects interest rate cuts in February, May and November, taking rates to 4 per cent by the end of 2025.
What will happen to inflation?
Paul Dales, chief UK economist at Capital Economics, predicted that inflation would rise to around 2.8 per cent in January. He said: “We do think that by the end of 2025, CPI inflation will have fallen back close to 2 per cent. But in the first half of the year, we suspect it will be a bit higher than most expect.”
Rob Wood, chief UK economist at Pantheon Macroeconomics, added: “Looking ahead, we expect headline inflation to reach 3.1 per cent in April 2025 and stay at or above 3 per cent until October 2025.
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Read MoreIt said it doesn’t expect inflation to return to below the target of 2 per cent until spring 2027.
Most will not see a change to their mortgages – whether it is variable or fixed.
Meanwhile, 81 per cent of people are on fixed-rate mortgages, where the interest rate is locked for a set period of time. So, if you are on this type of loan, your repayments will not change based on the decision.
However, they are expected to fall more broadly in the new year.
“Current projections indicate that the MPC will cut rates by 25 basis points each quarter until mid-2025. However, forecasts suggest rates may only drop to around 3.5 per cent by early 2026.”
What does it mean for savers?
As the base rate is expected to stay the same, savings rates are not expected to change drastically.
Mark Hicks, head of Active Savings at Hargreaves Lansdown, said: “Savers could be forgiven for wondering why they didn’t see much of a change in savings rates after inflation data came in higher than expected a month ago.
“The lack of significant movement in either direction means that if you still haven’t got round to fixing the savings you don’t need for a year or so, there’s still time to lock in a decent deal.”
The current best easy-access deal is with Atom Bank at 4.85 per cent while the best one year is with Habib Bank Zurich at 4.8 per cent.
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