Bank of England votes to hold base rate at 5.00%

The Bank of England (BoE) has voted 8 to 1 to hold the base rate at 5.00%.

This move comes after MPC’s inital decision to set the rate at 5.00% in August, the first base rate cut since 2020.

Prior to this, the rate had seen 14 consecutive hikes by the central bank, followed by seven consecutive holds at 5.25% in its ongoing battle to curb inflation.

This news may come as a disappointment to many homeowners and potential borrowers, following calls from industry experts for another base rate decrease, in light of inflation holding firm at its 2% target and increasing confidence returning to the mortgage market.

Earlier today, the Building Societies Association (BSA) found that 23% of people wanted to see a 0.50% cut or more, while a similar number (21%) believed a cut of just 0.25% points was needed. 

Reaction:

Nicholas Mendes, mortgage technical manager and head of marketing at John Charcol:

“The rise in services inflation yesterday has all but confirmed the hold decision expected today.

“Financial markets had already priced in a pause on interest rate cuts, but with core inflation accelerating from 3.3% to 3.6% — higher than the forecasted 3.5% — we now anticipate the next 25-basis point cut in November, followed by rate cuts at alternate BoE meetings until June.

“Today’s announcement does not change the clear, medium-term downward trend in mortgage rates.

“While we can expect a temporary lull in the competitive rate cuts seen in recent weeks, this will be just that, a lull, not a reversal in direction.”

Melanie Spencer, sales and growth lead at Target Group: 

“Even with the Fed’s sizeable cut last night, today’s decision to hold was still the most likely outcome, and expected by the markets, economists and by businesses across the sector.

“That little bit of stability has already allowed a number of lenders to tweak rates and engage in increasing competition for new business.

“The good news for potential borrowers is that this is likely to continue as we head towards the next potential cut, widely expected in November. 

“Of course, the Bank of England will keep a close eye on inflation before making any further decision, along with a number of other key metrics and global markets that could throw a spanner into the UK economy.”

Jeremy Leaf, north London estate agent and former RICS residential chairman:

“The Fed’s cut in interest rates has probably come too late to persuade the Bank of England to follow suit. 

“However, the direction of travel for mortgage rates has been steadily downwards and is of much more relevance ‘on the street’ to our buyers and sellers than what happens with base rate.

“A period of stability in base rate may actually be welcome as continuing falls may cause anxiety among buyers that they may miss out if they don’t hold off for longer. 

“This hold has been expected so the impact on the market is not likely to be huge. Arguably the forthcoming Budget will have more of an impact, particularly for higher rate taxpayers who are potentially feeling more vulnerable to unwelcome changes.”

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Mark Harris, chief executive of mortgage broker SPF Private Clients:

“With inflation sticking above the 2% target and expected to edge up in the autumn, the Bank was always likely to remain cautious although the markets still expect at least one further rate reduction before the end of the year, perhaps in November.

“There is a strong argument for the Bank to get on and cut rates again, giving borrowers an affordability boost, easing pressure on household finances and in doing so, assisting the wider economy.

“If worries about the Budget are realised, the need to boost transactions and activity in the housing market will be all the more apparent.

“However, while the Bank of England has failed to take action, lenders are reducing their mortgage rates regardless as they compete for business.

“Mortgage rates continue to soften, with Santander introducing a sub-4% 2-year fix on the back of the lowest two-year Swap rates in two years.

There are also plenty of 5-year fixes at sub-4% for those looking for certainty over a longer period.

“While rock-bottom rates have long gone, these reductions in mortgage rates are giving borrowers some comfort after a prolonged period of rising pricing.

“Competition between lenders is likely to mean further gentle reductions in mortgage rates as they vie for new business.”

Amy Reynolds, head of sales at estate agency Antony Roberts: 

“The August rate cut gave the property market a huge boost, even though it’s traditionally a quiet month.

“Likewise, a rate reduction this month would have propelled the market forwards as there is still time to move before the end of the year. 

“However, a November rate reduction to 4.75 per cent always looked more likely.

“If that does happen, it will be too late to impact the market this year unfortunately but will hopefully kickstart the 2025 market. 

“While the Bank hasn’t moved on rates, lenders are already bringing mortgage rates down, which is encouraging borrowers to make their move.”

Joe Pepper, UK chief executive office at PEXA:  

“The decision to hold the base rate is a disappointment for borrowers, but it is not a surprise following yesterday’s inflation figures.

“We now hold our breath until the next MPC meeting in November, but that decision will also be contingent on the market’s reaction to the Labour government’s first Budget. 

“Whether the rate is reduced in November or not, we will see huge spikes in demand in the final two months of the year thanks to the fact that millions of people are coming to the end of their fixed rates.

“Coupled with a Budget that might well reinforce the Government’s focus on addressing the issues in the front end of the property market for the economic benefits it brings, there will be a spike in demand from consumers that will inevitably pile the pressure on conveyancing infrastructure that is already overburdened and simply not equipped to handle it.”

Article from The Intermediary Online by Jessica O'Connor