The Bank of England's Monetary Policy Committee has voted 8-1 to maintain Bank Rate at 4.5%.
One member preferred to reduce interest rates by 0.25%, to 4.25%.
Last month, the Committee voted 7-2 to reduce Bank Rate from 4.75% to 4.5%, and a hold was widely expected today due to rising inflation and strong private sector wage growth.
Inflation accelerated to 3% in January - above economists' forecasts of 2.8% - and has now almost doubled since September.
CPI inflation is still projected to rise to around 3.75% in Q3 and, although it is then expected to fall back, the Committee says it "will pay close attention to any consequent signs of more lasting inflationary pressures".
In its meeting, the Committee said: "Since the MPC’s previous meeting, global trade policy uncertainty has intensified, and the United States has made a range of tariff announcements, to which some governments have responded. Other geopolitical uncertainties have also increased and indicators of financial market volatility have risen globally."
More than three-quarters (76%) of brokers predicted that interest rates will remain unchanged, according to a survey from Landbay. However, a fifth of brokers polled (20%) believe a rate cut is on the horizon.
Paresh Raja, CEO of Market Financial Solutions, commented: “The past six months have shown that predicting base rate movements is never straightforward. The hope had long been that once inflation was brought under control, the Bank of England would rapidly reduce rates. But this was over simplistic; it overlooked the myriad other factors at play - economic and politically, domestically and internationally, the landscape is constantly evolving, and while further cuts to the base rate are still expected this year, it is likely that the central bank will remain cautious. Today’s decision reflects that.
Matt Smith, Rightmove’s mortgage expert, added: “Now that this expected interest rate hold is out of the way, all eyes are on May’s decision where the current forecast is a second cut of the year. Since the last decision in February, average mortgage rates have trickled downwards slightly but pretty much stayed flat. We’re seeing lenders try to price competitively where they can to capture business during some of the busiest months of the year for home-moving. However, there currently isn’t much wiggle room for lenders to offer cheaper rates, and hopefully a second cut can spur forward another wave of falling rates, and bring average rates closer to 4% rather than 5%.
“Some lenders may have also priced their products to manage volumes of new cases, as they try to protect their operational capacity at the start of the year to process as many completions as they can ahead of the Stamp Duty deadline. As the Stamp Duty deadline will pass soon, they could then release this capacity, and as a result we may see some lenders start to price even more competitively.”
Tim Parkes, CEO of RAW Capital Partners, said: “With inflation expected to continue to rise throughout Q2, and ongoing geopolitical turbulence across Europe, the US and the Middle East, the markets had priced a 95% chance that the Bank of England would hold the base rate today, so the decision comes as no surprise. Following February’s cut, the MPC committed to a ‘careful’ approach, and markets now anticipate only a 0.5% reduction to the base rate by year-end.
“Naturally, this will disappoint brokers and borrowers across the UK property market. But the market will swiftly adjust to the new base rate forecasts, and it is important to note that, even though interest rates are not falling as fast as some thought they would, the property market has enjoyed a strong start to the year - houses prices are up amid a surge in buyer demand and elevated transaction levels. This suggests the market is progressing, not merely treading water.
“For lenders, recognising the market’s appetite to invest will be crucial in the coming weeks and months. Investors and homebuyers are actively pursuing opportunities, so fixating on the latest MPC decision is unproductive. Instead, lenders must adapt, meet borrowers where they are, and focus on delivering the highest level of service - even if they can’t slash rates just yet.”
“Where the property and mortgage markets are concerned, it is important that neither complacency nor inertia are allowed to set in. Sitting tight in the assumption that rates will tumble could prove risky. With data showing that house prices and buyer demand are on the rise, the market will clearly move ahead. So, the focus from lenders when serving brokers and borrowers has to be on delivering products and services that give clients the confidence to act in the here and now, with flexibility and optionality remaining key qualities in achieving this.”
