The Bank of England’s Monetary Policy Committee (MPC) has once again chosen to maintain the base rate at 5.25%, where it has remained since August 2023.
The MPC voted by a majority of 7-2 to maintain the base rate at its current level once again.
The rate remained the same despite encouraging news that inflation reached the bank’s target of 2% this week, and that unemployment hit 4.4%, which led some commentators to predict the first drop since before the pandemic.
Reaction:
Nicholas Mendes, mortgage technical manager at John Charcol:
“The Bank’s decision to hold rates steady today is no surprise, given its aim to maintain a neutral stance amid the ongoing general election.
“Despite inflation reaching the 2%-mark, persistent inflation is evident in the underlying figures for services inflation and core inflation.
“Core inflation has decreased slightly to 3.5%, down from 3.9% in April, showing continued inflationary pressures despite the overall drop in the headline rate.
“Concerns about persistent price pressure remain, and with wage growth still at elevated levels, the fallback is likely to be slow in the coming months.
“Leading up to this Monetary Policy Committee (MPC) meeting, market predictions indicated a 50% chance of an initial rate cut to 5% by August, however June’s inflation print, and wage growth data will be key to that assumption with a potential total decrease of 0.5% by the end of the year.
“While today’s decision to hold rates steady may be difficult to accept, recent lender movements suggest we are approaching the end of the era of higher-priced fixed rates.
“Borrowers though will need to remain patient a bit longer before we start to see high street lenders battling amongst themselves at sub-4% fixes.”
Jonathan Bone, lead mortgage adviser at Better.co.uk:
“Borrowers have waited three long years for inflation to return to the 2% target. Now that it’s finally happened, the excitement has dampened as underlying price pressures in the economy have not slowed as quickly as expected, and the ongoing election likely hasn’t helped either.
“The Bank of England remains obstinate, unwilling to take action despite widespread criticism. Those with mortgages are desperate for relief.
“Many homeowners assumed that hitting the 2% inflation rate would automatically lead to interest rate cuts, making today’s base rate decision particularly disappointing.
“The Bank of England’s inaction has contributed to higher mortgage rates for millions of homeowners who have needed to remortgage this year.”
Paresh Raja, CEO of Market Financial Solutions:
“Over the past ten months, as the Bank has decided to keep the base rate at 5.25% on seven consecutive occasions, it has been clear that it will delay cuts for as long as it needs to.
“But with inflation now at 2%, and the European Central Bank having made cuts, the pressure is mounting – all signs suggest that, once election turbulence subsides, the Bank will commence rate cuts, although it’s dangerous to take that for granted. All eyes will be on its next meeting on 1st August.
“Still, lenders, brokers and borrowers cannot get carried away. Cuts to the base rate will likely come in the second half of the year, but rates will not tumble back to the levels many had become accustomed to between 2008 and 2022.
“Yes, even a small drop in rates will benefit borrowers and inject more life into the property market, but the cost of borrowing has moved on, and the market is adjusting to that.
“As lenders, the onus is on us to provide flexibility and optionality to borrowers.
“Some may want the certainty of a fixed-term product, others would rather have a tracker in the hope that the base rate tumbles faster than expected; some will be patient in waiting to see the fallout of the election, others are ready to act now.
“It is important all types of buyers are supported in what remains an uncertain political and economic climate.”
Ben Allkins, head of mortgages and protection at Just Mortgages:
“If there was ever a time for the Bank of England to finally pull its finger out, this was certainly it.
“Yet, in spite of inflation finally reaching the illusive 2% target, and recent GDP figures showing a flatlining economy, the MPC is still watching and waiting.
“While we can be encouraged by positive levels of buyer registrations and requests for valuations and appointments, a cut today would have been a real adrenaline shot to help carry us through a summer full of potential distractions – particularly with a general election.
“For now, we just have to hope swap rates react favourably to further stability in the base rate, giving lenders some wiggle room to reprice.
“With potential borrowers still desperately trying to navigate the market and deal with clear affordability challenges, brokers must stay visible and proactive, highlighting the wealth of options out there to support all types of borrower, as well as the cash that is still available from lenders willing to lend.”
Nick Henshaw, head of intermediary distribution at Wesleyan:
“Despite the fact that inflation is now moving in the right direction, the MPC has pressed pause on any potential cuts – for now.
“Still, it’s a clearly a case of when, not if, rates will fall, with markets now looking at late summer or early autumn.”
Mark Michaelides, chief commercial officer at Molo:
“The Bank of England’s decision to keep the base rate at 5.25% for the seventh consecutive time is no surprise, despite the positive news yesterday that UK inflation has hit the 2% target for the first time in three years.
“The stickiness of services inflation in particular remains a concern, as well as core inflation, and we believe neither a June nor August rate reduction is likely as a result.
“However, we do believe there will be some relief for those of our customers on variable products in Q4 with a first rate cut.”
Ben Thompson, deputy CEO at Mortgage Advice Bureau:
“Even after inflation hit the two per cent mark yesterday, the Bank of England has decided it’s best to continue its wait-and-see approach.
“The widely expected decision to maintain rates at a 16-year high won’t raise any eyebrows and mortgage rates will in all likelihood stay stable for the foreseeable.
“For first time buyers and those looking to refinance, it is important to not be deterred by this.
“Now is the time to get mortgage ready so you are in the best position to take advantage of any future movement in mortgage rates.”
Paul Broadhead, head of mortgage and housing policy at the BSA:
“With two of the nine members of the Monetary Policy Committee voting for a cut today, it is clear that some are holding out for more overwhelming evidence that inflation can consistently stay at or close to the target.
“We still anticipate the Bank Rate will reduce this year, however this is happening much later and slower than we had anticipated earlier in the year.
“Homeowners who are coming to the end of a fixed-rate mortgage this year, will need to prepare for an increase in their mortgage payments.
“Anyone who is concerned that they may experience financial difficulties in the coming months, should contact their lender as soon as possible, preferably before missing any payments.
“They have a range of practical, tailored support available to anyone who may be struggling.”
Jason Ferrando, CEO of easyMoney:
“We’ve now seen inflation dip to within the Bank of England’s two percent target but hopes of a rate cut today were probably a tad premature.
“That said, it’s looking increasingly more likely that one will materialise this summer and this will help to further strengthen a housing market that has seen stability return.”
Bradley Post, MD of RIFT:
“There’s certainly light at the end of the tunnel for the nation’s households who have endured an extremely prolonged period of higher outgoings which has stretched them to breaking point financially.
“While today’s decision might not be the one they wanted to hear, it will continue to provide a degree of stability and with inflation now falling to two percent, we should start to see the cost of living become more manageable over the coming months.”
Ed Phillips, CEO of Lomond:
“Stability has been key to the returning health of the UK property market in recent months and this stability has come by way of a freeze on interest rates since last September.
“While the nation’s homebuyers will have been hoping for a reduction today, the decision to keep the base rate at 5.25% will, at least, continue to steady the ship.
“This should help to further boost the growing levels of buyer activity that have been building in recent months and ensure that the year ahead is a far more positive one for the market compared to the uncertainty of last year.”
Marc von Grundherr, director of Benham and Reeves:
“No news is good news with respect to today’s decision and the certainty that will come from another hold on the base rate is certainly better than the string of consecutive hikes seen in recent years.
“We’ve seen mortgage approvals top 60,000 approvals per month for three consecutive months now and this demonstrates that buyer confidence has been buoyed by the stability provided by a hold on the base rate.
“With the election unlikely to dampen this growing market momentum, the UK property market remains in a very strong position, particularly with the prospect of a cut on the horizon.”
Verona Frankish, CEO of Yopa:
“With a seventh consecutive hold on the base rate we look set to enjoy a summer of stability and we’ve already seen the housing market respond with an uplift in both buyer and seller activity.
“While the election may take centre stage over the coming weeks, it’s unlikely to dampen current market enthusiasm and the outlook for the year ahead is a very positive one considering we’re yet to see a reduction in interest rates.”
Jonathan Samuels, CEO of Octane Capital:
“The Bank of England’s slow but steady approach to managing the economy has finally yielded the two percent inflation rate they desired, but it’s fair to say that this has taken quite a while longer than it may have had they acted with greater intent.
“Given this fact, it’s hardly surprising that we’ve seen another hold today and the nation’s homebuyers will have to spend that little while longer contending with current mortgage rates.”
Adam Oldfield, chief revenue officer at Phoebus:
“With central banks in Canada and Europe already starting to cut interest rates, it’s frustrating for lenders that the UK’s conservative monetary policy remains notoriously slow to effect change.
“I expect, though, that high service inflation influenced today’s decision. It rose by 5.9% in the 12 months to May 2024, which I should think is still uncomfortably high for the UK’s Monetary Policy Committee (MPC).
“With the General Election out of the way in July, we can only hope that service inflation drops ahead of the next MPC meeting in August.
“If not, and they decide to stick at 5.25%, the MPC will have held the base rate at 5.25% for an entire year.”
Simon Webb, managing director of capital markets and finance at LiveMore:
“The Bank of England’s decision to again hold the base rate at 5.25% comes as no surprise, continuing the bank’s trend of following market sentiment instead of steering it.
“Unfortunately last week’s manifestos also offered little stimulation to help older borrowers.
“The Conservatives’ pledge to increase the threshold at which first-time buyers pay Stamp Duty to £425,000 from £300,000 offers no support for older buyers, effectively trapped in their homes.
“If stamp duty was lifted for all buyers up to this threshold it would enable older borrowers to downsize, freeing up larger homes for younger borrowers.
“The Labour pledges similarly fail to address older borrowers’ needs despite the very real fact that we have an ageing population, with over 20 million people currently over 55.”
Mark Harris, chief executive of SPF Private Clients:
“It is no surprise that base rate has been held for another month, even though with inflation hitting the 2% target it is time for the Bank of England to be bold and start reducing rates.
“With yet another rate hold, borrowers will find not much changes in the short term.
“Those on fixed and variable rates alike won’t see their monthly mortgage payments change, so those sitting on their lender’s standard variable rate in the hope that rates will start falling soon may wish to seek advice and consider opting for a base-rate tracker or fixed rate to reduce their mortgage payments.
“Swap rates have fallen on the back of the latest inflation news and it will be interesting to see how they react to the voting split at this meeting.
“The more members who vote for a rate reduction, the more likely it is that this will occur sooner rather than later, which is likely to be reflected in Swaps and ultimately mortgage pricing.
“It will also impact how many rate reductions we see this year; with seven members still voting for a hold and two for a reduction, it may reduce the likelihood of more than one quarter-point cut in 2024.
“A significant reduction in Swaps over coming days may lead to mortgage rate reductions.
“However, it is only when the market feels the tide within the Bank has turned that true reductions in fixed-rate mortgages will reach the market again, bringing some good news for borrowers.”
Andrew Gething, managing director of MorganAsh:
“Even with inflation finally reaching its 2% target, today’s decision was still widely expected.
“Not only was the central bank always unlikely to pull the trigger straight away when inflation hit target, but making such a big call in the middle of an election campaign would have surely weighed heavily on its decision.
“While not the news many would have hoped for, that continuity and stability on base rate will certainly help those not on a fixed rate, although the financial burden does remain painfully high for many families.
“A cut to base rate today would have just brought a welcome reprieve, but at least we are still talking about ‘when’ rather than ‘if’.
“The FCA’s own data points to as much as half of all UK adults being vulnerable in some way.
“Sustained financial pressures will only increase the proportion of vulnerable customers each firm has and with Consumer Duty in force, it is up to each and every firm to identify who these customers are and provide the necessary support.
“Not only is this impossible without good data, but it makes it incredibly hard to meet the regulator’s reporting requirements due next month.
“For the sake of those customers in vulnerable circumstances, we do have hope that a base rate cut comes sooner rather than later.”
