Bank of England votes 8-1 to keep Base Rate at 5%

Despite the US Federal Reserve yesterday deciding to lower the target range for the federal funds by 0.5% (to a range of 4.75% to 5%) leaving more headroom, the Bank of England’s Monetary Policy Committee (MPC) voted 8-1 to maintain the Base Rate at 5%.

The one dissenting MPC member preferred to reduce Bank Rate by 0.25% to 4.75%.

12-month CPI inflation was 2.2% in August, and the MPC expects this to increase to around 2.5% towards the end of the year due to reductions in energy prices dropping out of the annual comparison.

Services consumer price inflation remained over the target rate of 2% at 5.6% in August along with private sector earnings at 4.9% in the three months to July.

Disappointingly the Bank of England said: “In the absence of material developments, a gradual approach to removing policy restraint remains appropriate. Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further.”

“Since the MPC’s previous meeting, government bond yields had fallen across major advanced economies in response to the softening in US labour market data and associated FOMC communications. Market-implied paths for policy rates across economies had generally ended the period lower. Coupled with UK data releases in that period having been largely in line with market expectations, that meant UK interest rate movements had been driven primarily by developments in the United States. Nevertheless, the UK market-implied path had fallen by less than in the United States. That had been associated with an appreciation of sterling against the dollar of 3%, which had accounted for most of the 1% increase in the sterling effective exchange rate since the previous MPC meeting”

However, in a glimmer of hope the Bank reported: “Expectations implied by market pricing had continued to suggest that the next 25 basis point cut would occur in November”

Industry reaction

Nathan Emerson, chief executive officer of Propertymark, said: “Since the initial rate cut a few months ago, many people will have been closely awaiting any further anticipated cuts, however, it remains crucial the Bank of England continue to implement cuts in a controlled and functional manner, as not to fast reverse the economic progress so far.

“Bearing in mind yesterday’s figures regarding inflation, it is understandable why the decision to hold the base at current levels has been employed. Propertymark remains keen to see full consistency within the wider economy and for any eventual base rate cuts to create a pathway for people that provides long-term stability, confidence and affordability.”

Fed’s cut in interest rates come too late to persuade the Bank of England

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “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.”

Expect further rate cuts in Autumn

Chief Commercial Officer, Mark Michaelides: “The Bank of England’s decision to hold the base rate at 5%, despite Wednesday’s encouraging headline inflation reading and the Fed’s 50bps reduction overnight, reflects ongoing caution in the face of persistent inflationary pressures in the services sector. We do however expect further rate cuts to come in the autumn, which will provide an immediate boost to existing borrowers on variable rates and those looking for new fixed rate deals.”

Optimistic mood

Matt Smith, Rightmove’s mortgage expert said: “We’re still expecting two rate cuts before the end of the year, and home-movers should continue to see a downward trend in mortgage rates this side of Christmas.

“I think overall, there’s likely to be quite a moderate response from lenders in response to today’s news – and whilst rates should continue to come down, mortgage lenders’ funding costs are unlikely to come down significantly, which wouldn’t leave heaps of room for dramatic mortgage rate cuts.

“However, we’ll monitor how things play out over the coming days, and I think we could see a mixture of some lenders holding rates while others cut further to drive up pre-Christmas business.

“Overall, I think there’s an optimistic mood about where we’re heading, and lowering mortgage rates is supporting the increased home-moving activity we’re seeing right now particularly against last year.”

Provides stability

Stephanie Daley, Director of Partnerships at Alexander Hall said: “The Bank of England’s decision to hold interest rates steady provides stability for homebuyers and those looking to remortgage, especially with the sub 4% mortgage rates we are now seeing for 2- and 5-year fixed terms.

“As we approach the two-year anniversary of the Liz Truss mini-budget, this decision offers a sense of predictability, allowing the market to maintain its positive outlook for the remainder of the year. September has already been an incredibly busy month, with strong confidence from homebuyers, and keeping rates unchanged should help sustain this momentum, encouraging continued activity in the property market.”

Mortgage sector has been responding well

CEO of Octane Capital, Jonathan Samuels, commented: “The mortgage sector has been responding well to the market certainty that followed the Bank of England’s initial decision to hold rates at 5.25% and this market sentiment has only improved further following the base rate reduction seen at the start of last month.

“As a result, we’re not only seeing the rates offered on many products reducing, but the range of products available is also growing, with this greater level of choice helping more buyers to enter the market.

“Today’s decision to hold interest rates at 5.00% is unlikely to dent this growing market positivity and we expect more buyers to be tempted back into the fold, while the overall health of the UK property market will continue to strengthen.”

All the signs pointing to a rate hold this month

Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “All the signs were pointing to a rate hold this month, so it’s not hugely surprising that the Bank of England has kept rates at 5 per cent. With inflation sticking above the 2 per cent 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 per cent two-year fix on the back of the lowest two-year Swap rates in two years. There are also plenty of five-year fixes at sub-4 per cent 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.”

Measured approach is key

Gareth Lewis, managing director of specialist lender MT Finance, says: “Today’s decision to hold rates steady reflects the reality of the current economic landscape. This is indeed a prudent move that signals stability.

“For property investors, this decision may create a stronger demand for alternative financing solutions such as bridging loans. A measured approach is key, and we anticipate that a rate reduction is on the horizon as inflationary pressures continue to ease.”

August rate cut gave property market a boost

Amy Reynolds, head of sales at estate agency Antony Roberts, says: “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.”

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