"For the past two months or so, the question has been whether the first cut will come in June or August, and then how many cuts will there be by the end of 2024."
- Paresh Raja, CEO of Market Financial Solutions
The Bank of England's Monetary Policy Committee has voted 7-2 to maintain Bank Rate at 5.25%, with two members preferring to reduce Bank Rate by 0.25%.
One more member voted for a rate cut compared to March's meeting, where the vote was 8-1.
Interest rates have now been at 5.25% since August 2023, with many economists predicting that rates will begin to fall later this year.
In its latest meeting, the MPC said that "key indicators of inflation persistence are moderating broadly as expected, although they remain elevated".
It added 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 Committee’s updated projections, published alongside the MPC minutes, show Bank Rate declining from 5.25% to 3.75% by the end of its two-year forecast period.
Twelve-month CPI inflation fell to 3.2% in March from 3.4% in February. CPI inflation is expected to return to close to the 2% target in the near term, but to increase slightly in the second half of this year, to around 2.5%.
CPI inflation is projected to be 1.9% in two years’ time and 1.6% in three years in the May Report.
Ben Nichols, interim managing director at RAW Capital Partners, commented: “Cuts are coming, perhaps sooner than some might anticipate, but until there is certainty that inflation is not going to rise again the Bank of England will remain steadfast in holding the base rate where it is.
“That the base rate has remained static for nine months has afforded homebuyers and investors a degree of certainty. But higher borrowing costs will continue to squeeze house prices, and this will naturally weigh on the minds of both buyers and sellers. Moreover, it places the emphasis on how lenders and brokers can best support borrowers in this higher-rate environment.
“Flexible financial products, firm commitments, and transparent communication are all vital qualities that brokers and their clients need when looking to leverage opportunities as the economic horizon brightens. For lenders, therefore, meeting these commitments will help foster confidence among investors in the UK property market.”
Paresh Raja, CEO of Market Financial Solutions, said: “We’ve known for some time that the Bank of England would not be cutting rates today. For the past two months or so, the question has been whether the first cut will come in June or August, and then how many cuts will there be by the end of 2024.
“When the base rate falls, and how quickly, remains to be seen. But the bigger picture is that the property market has slowly but surely gone through a period of adjustment over the past two months – the reality has sunk in that rates will not get back to the low levels many borrowers had become accustomed to throughout the 2010s.
“A base rate above 4% is highly likely for the next 12 to 18 months, and the sense of inertia is steadily fading away as buyers and investors decide to re-enter the market. So, now is the time for lenders to be flexible and embrace a ‘can-do’ attitude, ensuring the right products are available to brokers and their clients in a timely manner, allowing fresh life to be breathed into the market.”
Ben Allkins, head of mortgages and protection at Just Mortgages, commented: “It’s hard not to see today’s decision as a missed opportunity, especially as inflation continues to head in the right direction. I know the central bank has many factors to consider and often follows the lead of the Fed and ECB, but further delays keep the economy fighting for life and risk derailing all the positive momentum we have seen in the mortgage market so far this year.
“Just recently, we have seen the impact of the changing expectations and a higher for longer mentality, with swap rates rising and lenders following suit across their product ranges. Even so, we’ve been encouraged by the high demand we have seen for valuations and appointments, demonstrating the growing confidence among clients. However, further delays make the job much harder for brokers to nurture and sustain this confidence. Thankfully, they are well placed to help clients navigate the market and identify the opportunities still available to make their plans a reality. It’s up to brokers to keep sharing this message and offering that five-star service.
“We have to hope that the Bank of England finally finds the confidence to pull the trigger on a base rate cut sooner rather than later.”
Josh Skelding, commercial director at Fignum, added: “The Bank of England’s cautious decision to hold off on lowering the base rate is a strategic move that reflects their careful approach to steering the economy through its recovery phase. It’s clear that we’re unlikely to see any cuts until the Bank is confident that inflation will stay at 2%, but a silver lining is that borrowers don’t seem deterred by current market conditions. The uptick in mortgage approvals signals a growing acceptance of a higher rate environment, and rather than being put off by recent repricing, purchase activity remains steady.
"Although we're not completely in the clear, and the uncertainty of a general election could test the resiliency of the market once again, there are still deals available with much lower rates than this time last year paving the way for a buoyant summer."
