Bank of England hold firm at 5.25%

The Bank of England’s Monetary Policy Committee (MPC) voted 6 – 3 to maintain the Bank Base Rate at 5.25. Two MPC members voted to to increase the rate by 0.25% and one member voted for a 0.25% reduction. This is consistent with the MPCs’ recent decisions to follow the FEDs decisions announced the day before.

The MPC downgraded its prediction for the Bank Base Rate over the medium term falling significantly by 1% from 4.25% to 3.25%.

CPI inflation is projected by the Bank to fall temporarily to the 2% target in 2024 Q2 before increasing again in the second half of the year.

From the MPC summary below it is obvious that the Bank Of England have no intention of rushing into any Interest rate reductions:

“Headline CPI inflation has fallen back relatively sharply. The restrictive stance of monetary policy is weighing on activity in the real economy and is leading to a looser labour market. In the Committee’s February forecast, the risks to inflation are more balanced. Although services price inflation and wage growth have fallen by somewhat more than expected, key indicators of inflation persistence remain elevated.

“As a result, monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit. The Committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates.

“The MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It will therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. On that basis, the Committee will keep under review for how long Bank Rate should be maintained at its current level.”

Industry Commentary on the MPC Decision

Nathan Emerson, Propertymark CEO, comments on the latest decision by the Bank of England to hold interest rates;

“It is positive to see that many people intending to buy their first home or sell their current one won’t be hindered by an increase in interest rates.  

“However, it is now time for the UK Government to continue to curb inflation so that interest rates can fall further to help ease the backlash this has had on people’s affordability. They should make 2024 the year consumers start to enjoy some confidence again following three years of disruption to the economy.”  

Jason Ferrando, chief executive officer of easyMoney said: “The Bank of England has been careful not to run before it can walk where our current economic recovery is concerned and so today’s decision was largely expected despite a sharp fall in inflation this week.

“This is probably the correct decision and while it won’t immediately ease the burden of the nation’s borrowers, it should help boost sentiment based on the expectation that we could now see a reduction in interest rates on the horizon.”

Chief executive officer of Octane Capital, Jonathan Samuels, said: “It appears that the Bank of England’s slow but steady approach to managing the economy has finally started to pay off, with inflation falling sharply this week.

“Generally speaking, today’s decision to keep the base rate held should bring further positivity for the economy and the property market, in particular. But while it’s likely to stoke the fires with respect to the increasing number of buyers returning to the market in recent weeks, they are best advised to proceed with caution.

“Swap rates have been gradually climbing so far this year in anticipation of today’s decision and so an ongoing degree of certainty where the base rate is concerned doesn’t necessarily mean lower mortgage rates are guaranteed.”

Matt Smith, Rightmove’s mortgage expert said: “As painful as rate rises have been for many people, there are increasing signs that Base Rate rises are having a real impact on the economy, and inflation is heading in the right direction. Another hold in the Base Rate today also shows that the Bank will also be cautious not to overshoot Base Rate rises, and will be keen to maintain the current stability.

“The market appears more robust than last year, evidenced by the fact that the surprise uptick in inflation a couple of weeks ago didn’t derail the downward trend of mortgage rates. The big picture remains the same – the Base Rate is unlikely to rise further, and mortgage rates have some room to come down further before settling.

“It’s been a promising start to the year for housing market activity, with more people than this time last year listing their home for sale, looking to buy, or getting a Mortgage in Principle to see what they can afford. For anyone thinking of moving but still holding back from taking action, the slight uptick in average rates in some lower Loan-To-Value brackets this week is a reminder that average rates won’t fall forever and mortgage rates appear to be settling after significant drops at the start of January.”

Director of Benham and Reeves, Marc von Grundherr, commented: “The property market has made considerable strides forward since the Bank of England first held the base rate at 5.25% and so today’s decision will only bring more certainty to buyers, helping to further cultivate the positive market landscape that has been developing.

“Yes, interest rates remain at their highest in over 15 years, however, this isn’t the cause of a diminished appetite for homeownership. Increasing rates, market uncertainty and ever changing mortgage offers are the key deterrent and buyers can now rest assured that the only way is down with regard to interest rates over the coming year.”

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