The Bank of England has voted to maintain interest rates at 5.25 per cent, rather than opt for a 15th consecutive hike. Reports that the Bank’s Monetary Policy Committee decision was on a knife edge this week were bang on: the MPC voted 5 – 4 to hold the rate, with four members voting to increase it by 0.25 percentage points.

The decision was down to a battle between data sets released this week; wage growth and the latest inflation figures. The Bank places a lot of weight on both sets when making its base rate decisions – but for this month’s meeting, they yielded conflicting results.

Wages, for the second month, marginally outpaced inflation (by 1 percentage point). This troubles the Bank, as it fears a secondary round of inflation driven by a ‘wage-price spiral’. But the latest inflation update was much more positive. Despite warnings that headline inflation might rise temporarily due to an increase in fuel prices, the headline rate was at 6.7 per cent on the year last month, down from 6.8 per cent in July. Core inflation (excluding food and energy prices) slowed too, rising by 6.2 per cent in the year to August, down from a 6.9 per cent rise the month before.

It appears that the majority of the MPC were led by the inflation data – almost certainly the right call. Not only is there very little evidence of a wage-price spiral in the UK, but the latest GDP figures (revealing a 0.5 per cent contraction in July) suggest the 14 previous rate hikes are starting to take their toll. Hikes are risky because they raise the possibility of triggering a recession. Current forecasts put the UK on just the right side of the line (with negligible growth predicted), so further rate increases could tip the scale from what is technically a growing economy to one that is contracting.

Have we reached the peak base rate in the UK? Market expectation is currently for it to peak at around 5.35 per cent. This number fluctuates frequently, and could drift upwards again, suggesting one more rate hike in November or December. But it seems more probable now than even a few months ago that the Bank may press pause for good.

The MPC, however, does not rule out another hike, and today’s extremely narrow vote suggests there is not yet a consensus about how to proceed. Even if Rishi Sunak’s promise of ‘halving inflation’ is achieved this year, the headline rate will still be more than double the Bank’s target of 2 per cent. This may inspire another hike in the coming months. In its minutes, the committee notes that ‘further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures’. This reflects a similar update from the Federal Reserve this week, which held rates in the United States at 5.5 per cent for a second time, noting that it was waiting to see how the rate hikes which have already been implemented are feeding through to economic activity.

Regardless, today’s decision is good news for mortgage holders and hopeful home buyers, who in some cases have seen their mortgage rate triple. Some of the big lenders have already started reducing the rates they offer after some recent clarity that their worst fears for the base rate may not be realised. Today’s news, and the market expectation following it, may see those rate offers reduce further.

But don’t expect a base rate reduction any time soon. The MPC makes clear that while it has opted for a rate pause, it will not backtrack on previous hikes, saying ‘monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2 per cent target sustainably in the medium term, in line with the Committee’s remit’. In other words, historically normal rates are here to stay.