Economist James Bennett warns the Bank will be wary of “unleashing” a powerful rebound in spending and housing demand too soon
UK households hoping tomorrow's Bank of England rate decision will herald a new era of cheap money may be disappointed, according to one economist, who argues any move will mark a tactical adjustment within a restrictive stance, rather than the start of an aggressive easing cycle.
“We view a December rate cut from the BoE as a gradual easing of still restrictive policy as opposed to the initiation of an outright shift to dovishness,” James Bennett, CFA, UK Lead, BMI (a Fitch Solutions Company), told Mortgage Introducer.
“The UK economy is expanding below trend, and the labour market has eased significantly in recent years; however, it would be premature to expect loose monetary policy,” he said.
Inflation has come down from its peaks, but Bennett stressed that it remains above target, as do inflation expectations – a key reason the Bank is likely to tread carefully.
“Growth is subdued and the labour market loosening, but neither of these are overly downbeat. Rather, they are depressed in large part due to past rate hikes, which is an unsurprising outcome,” he continued.
READ MORE: Bank of England set for knife‑edge vote on December rate cut, says Oxford Economics
Policy distortions beginning to fade
Bennett also point to the impact of a series of policy changes in 2025 that had temporarily skewed the economic picture, making the Monetary Policy Committee’s task more difficult.
“Government policy distorted the backdrop in April 2025 with large increases to administered prices and the national living wage, besides a jump in employer National Insurance contributions,” he explained.
“The latter of these two weighed on employment, but the impact is largely in the rear‑view mirror and [we] are not getting a repeat in 2026.”
With those shocks fading, the Bank can focus more squarely on underlying trends in inflation, wages and demand – but that does not mean it will rush to ease aggressively.
BoE wary of ‘unleashing’ pent-up demand
One of the biggest reasons for caution, Bennett argued, is the amount of pent‑up spending power sitting on household balance sheets.
“It may be reasonable to expect that a return to dovish policy, especially if accompanied by reduced uncertainty and greater confidence, would trigger a significant resurgence in activity,” he said.
“This comes as the household savings rate is quite elevated at 10.7% in Q2, suggestive of pent‑up demand for purchases. The Bank will be wary of unleashing this until it believes the inflation genie is back in the bottle.”
In other words, while a looser stance might turbo‑charge growth, it could also reignite price pressures just as the Bank is starting to make clear progress on inflation.
Households, savings and the housing market
For brokers and lenders, Bennett said the key to understanding the next phase of the cycle lies in household behaviour rather than just the headline Bank Rate.
“With households retaining high savings and real income gains remaining strong, the household savings rate, and relatedly, household confidence remain key to activity,” he noted.
“Should the outlook turn up, households may be willing to draw down elevated savings, driving up consumption and possibly purchases of bigger ticket items like autos and housing.”
On housing specifically, he sees scope for a gradual pick‑up as rates edge down and confidence firms.
“Regarding the housing market, lower rates and high household confidence may begin to support activity over the coming quarters,” he said. “Household balance sheets remain quite healthy and able to take on leverage, and most existing home owners have rolled off low pre‑2022 rates so no longer have an incentive to maintain the status quo in terms of mortgages.”
For the mortgage industry, that combination – healthier real incomes, elevated savings and a slow move towards more neutral policy – suggests a more constructive, if still cautious, backdrop.
The message from Bennett is clear: Thursday’s cut, if it comes, is likely to be an important step away from peak restrictiveness – but it will be the pace at which confidence and savings are unlocked, not just the level of Bank Rate, that determines how powerful it proves for households and the housing market.
READ MORE: BoE rate cut expected, but brokers say confidence – not deals – will move the market
