The Bank of England has opted to hold the base rate at 5.25%, marking the seventh consecutive meeting where the Monetary Policy Committee (MPC) has chosen not to adjust interest rates. This decision comes after inflation hit the Bank’s target of 2% in May, though projections suggest it could rise again in the latter half of the year. The MPC’s vote was 7-2, with two members favoring a 0.25% cut to 5.0%.
Industry Reactions
Jane Tully, Director of External Affairs at the Money Advice Trust, highlighted the challenges for homeowners:
“As interest rates remain steady, many homeowners are feeling the strain of significantly higher mortgage repayments. For those nearing the end of fixed-rate deals this year, the challenges are far from over. I’d encourage anyone facing difficulties paying their mortgage to reach out to their lender for support – they can offer more support than many people think.”
Paul Broadhead, Head of Mortgage and Housing Policy at the Building Society Association, expressed disappointment:
“With inflation dropping to almost the 2% target, many mortgage borrowers might have been hoping for a cut in the Bank Rate today. The decision to keep rates at 5.25% will be very disappointing news for them, as well as those looking to buy their first home. 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.”
Katie Pender, Managing Director of Target, commented on the timing:
“With the inflation target of 2% met, some might be disappointed that the Bank of England has not reduced the bank rate today. However, the decision to hold the rate in a pre-election period was to be expected. The Bank is no doubt now waiting to see the outcome of the General Election before making a cut and the market will be watching what happens at the next MPC meeting in August closely.”
Paul Heywood, Chief Data & Analytics Officer at Equifax, noted the broader economic context:
“Today’s decision to keep rates on hold was unsurprising amid the general election fever and a cautious stance from the Fed last week. Even with a future base rate cut in sight, high interest on borrowing and cost of living pressures will persist for some time. So far consumers have successfully adapted their spending habits to weather these challenges, with mortgage arrears growth easing in recent months. However, there are still signs of stress in the system with credit card debt up 8% annually.”
Ben Allkins, Head of Mortgages and Protection at Just Mortgages, criticized the decision:
“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.”
Implications for Homebuyers and Renters
The decision to hold rates steady impacts potential homebuyers and renters alike. With high mortgage rates and unaffordable deposits, many are finding it increasingly difficult to enter the housing market. Even those who are renting face challenges, as the cost of living crisis continues to strain budgets.
Simon Webb, Managing Director of Capital Markets and Finance at LiveMore, emphasized the struggles of different demographic groups:
“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.”
Andy Mielczarek, CEO of Chetwood Financial, expressed cautious optimism:
“It was pleasing to see the Bank of England double down on its previous decisions to hold interest rates at 5.25%. Despite inflation reaching the Government’s 2% target, prices remain extremely high, and the Central Bank clearly feels that any reduction in the rate could spark a fresh spike in inflation.”
Looking Forward
The anticipation now shifts to the next MPC meeting in August, where a rate cut may become more likely. This potential change could offer some relief to mortgage borrowers and first-time homebuyers. However, the financial pressures remain significant, and lenders are urged to support vulnerable customers.
Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown, highlighted the ongoing vigilance of policymakers:
“The Old Lady of Threadneedle Street is not for turning, and is still training a beady eye on hot prices in parts of the economy, even though headline inflation has hit the 2% target. There is not sufficient data yet in the bag to prompt more members of the MPC to vote for an interest rate cut, but hopes are now building that one may come in August.”
Sarah Coles, Head of Personal Finance at Hargreaves Lansdown, reflected on the impact for mortgage holders:
“It’s yet another kick in the teeth for those on variable rate mortgages, who’ve been holding out for a rate cut for almost a year. They’re still likely to get a cut in August or September, and possibly two by the end of the year, but that’s not going to move the dial anywhere near as much as they will have expected when they remortgaged onto a variable deal in the hope that rates would fall swiftly and often.”
Conclusion
The Bank of England’s decision to hold the base rate at 5.25% reflects a cautious approach amidst ongoing economic uncertainties. While this stability provides some predictability, it also prolongs the financial strain on borrowers and renters. The upcoming MPC meeting in August will be crucial in determining the future direction of interest rates and the broader economic outlook.
