Bank of England Maintains Base Rate Amidst Further Rate Reductions by Major Lenders

interest rate holds steady

In a move aligned with market expectations, the Bank of England (BoE) decided to maintain its base rate at 5.25%, signalling a continuation of its cautious approach to monetary policy. This decision follows the recent trend set by the European Central Bank (ECB) and the Federal Reserve.

The BoE’s Monetary Policy Committee, which had increased the base rate 14 times since its historic low of 0.1% in December 2021, faced the challenge of sticky inflation. With the inflation rate standing at 4%, twice the BoE’s 2% target, there was little appetite for further tightening. Interestingly, the announcement revealed a rare three-way split within the MPC, with two members voting for an increase and only one for a cut.

Paresh Raja, CEO of Market Financial Solutions, commented on the decision, noting the delicate balance the BoE is navigating. Raja emphasised the impact of sticky inflation on the hesitation to cut rates but also highlighted the increasing pressure from rising company insolvencies and the broader economic impact of higher borrowing costs.

“The base rate has almost certainly peaked,” Raja asserted, anticipating an eventual decrease. Despite potential future holds, he observed the positive impact on the market, with mortgage, bridging, and buy-to-let (BTL) rates already showing signs of decline. Raja believes the market is benefitting as the inevitability of a rate cut draws closer.

Jonathan Samuels, CEO of Octane Capital, praised the BoE’s slow but steady approach, attributing a recent sharp fall in inflation to this strategy. While Samuels anticipated further positivity for the economy and property market with the base rate held, he cautioned that rising swap rates this year might not guarantee lower mortgage rates.

Jason Harris-Cohen, chief of Open Property Group, acknowledged the time lag between a base rate decision and its impact on markets and consumer confidence. Harris-Cohen expressed relief at the continuation of the freeze on interest rates, suggesting that a rate cut in the future could stimulate economic recovery.

As the market responds to these developments, observers urge caution among buyers, emphasizing that the effects of today’s decision might not immediately translate into lower mortgage rates. The gradual climb of swap rates, signalling market anticipation, adds a layer of uncertainty despite the BoE’s decision to maintain the base rate.

In conclusion, the BoE’s decision to hold the base rate at 5.25% reflects a nuanced response to the current economic landscape. The three-way split within the MPC and the persistent challenge of inflation create an environment where future rate cuts seem likely, though the timing remains uncertain. Market participants are advised to proceed with caution amidst ongoing economic dynamics.

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