The Bank of England has held interest rates at 4.75 per cent, after new data showed the rate of Consumer Prices Index (CPI) inflation rose to 2.6% last month, its highest level since March.

The Bank said this was slightly higher than its previous expectations and reflected stronger price rises in core goods and food, while inflation across the services sector also remained elevated.

Predicted rate falls from earlier in 2024 failed to materialise, which will be a Christmas windfall for many savers.

The Monetary Policy Committee (MPC) said it was keeping rates unchanged on Thursday after cutting the level in August and again in November.

Six of its members preferred to keep the base rate at 4.75%, while three voted for a 0.25 percentage point reduction.

Governor Andrew Bailey said the central bank needs to make sure inflation returns to its 2% target level on a “sustained basis”.

“We think a gradual approach to future interest rate cuts remains right, but with the heightened uncertainty in the economy we can’t commit to when or by how much we will cut rates in the coming year,” he said.

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The CPI increase, along with continued wage growth, persuaded six members of the nine-person committee to maintain a gradual approach to lowering rates.

Furthermore, policymakers said they considered the potential impact of measures announced in the Government’s autumn Budget, and from geopolitical tensions and trade policy uncertainty.

These factors meant the economic outlook was more uncertain.

Measures in the Budget, namely a planned increase to the rate of employer national insurance and the national living wage, could affect future inflation, the MPC said.

This is because businesses have indicated that they might respond to higher taxes by raising prices, or by laying off existing workers.

Meanwhile, the committee also discussed risks to inflation and economic growth from the incoming Donald Trump presidency in the US, as he had proposed hiking tariffs which could influence global trade.

How big an impact such a measure could have on the UK economy is not yet known, the MPC emphasised.

The Bank’s decision comes a day after policymakers in the US reduced interest rates, but signalled they would be slowing the pace of rate cuts going forward after inflation forecasts were revised higher.

The cautious tone and shift in expectations weighed heavily on investor sentiment, with US and European stock markets seeing sharp falls.

The Bank of England’s decision nonetheless followed a split vote, with three members suggesting that a weakening jobs market and global conditions could put downward pressure on wages and prices.

Adam Thrower, head of savings at Shawbrook, says that savers will be relieved to see a brief pause in the rate-slashing agenda. But, he added: "Time’s ticking to lock in high-paying accounts before the next cut, which could see savings rates tumble. There’s a lot going on this month but if you have a few spare minutes, it’s worth adding ‘open a new savings account’ to your to-do list and look at the possible tax implications of where your money is sitting.

"A whopping 4.2 million UK savings accounts could be tax liable now so reviewing your savings options—including ISAs—could be a great present to give yourself this year.”

Anyone taking out a new mortgage or fix might be less enthusiastic, however.

Ben Thompson, Deputy CEO at Mortgage Advice Bureau, explains: “We might not be rockin' around the Christmas tree with joy, but another interest rate hold means we step into Christmas on the back of a positive year for buyers. Even though rates haven’t fallen as much as we’d have liked, the situation is much improved compared to 2023. Mortgage rates are now more affordable, buyers have confidence again, and the housing market has shown resilience.

“For those looking to buy in 2025, the future is bright. The base rate should continue to fall - even if it takes a bit longer - and mortgage rates could follow. We’ve seen some lenders repricing upwards recently based on slight volatility in the Swap Market, but rates are mostly holding steady. For those hoping to hang their stockings in their own home next Christmas, now is the time to get mortgage ready by seeking advice and taking the first steps on the journey to homeownership.”