"Interest rates will come down soon enough, with most experts anticipating a cut in June, or at the latest August. But this won’t mean blue skies all around."
- Andy Mielczarek, founder and CEO of SmartSave
The Bank of England's Monetary Policy Committee has voted 8-1 to maintain Bank Rate at 5.25%.
One member voted to reduce Bank Rate by 0.25 percentage points, to 5%.
Interest rates have now been at 5.25% since August 2023, with many economists predicting that rates will begin to fall later this year.
The latest figures show that UK inflation has fallen to the lowest level seen since September 2021, with the annual rate down from 4.0% in December and January to 3.4% in February.
Bank of England projections show that CPI inflation will fall slightly below the 2% target in Q2 2024, marginally weaker than previously expected due to the freeze in fuel duty announced in the Budget.
However, the Bank says "key indicators of inflation persistence remain elevated".
Industry experts welcomed the fall in inflation and said it could prompt mortgage lenders to begin softening rates, but still expect the Bank of England to hold interest rates until the summer.
In its latest minutes, the MPC said: "Monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit. The Committee has judged since last autumn 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."
Andy Mielczarek, founder and CEO of SmartSave, commented: "Any predictions that yesterday’s inflation announcement would precipitate a drop in the base rate were optimistic – the Bank of England has not bowed to pressure to cut rates in recent months, and it is likely to still be wary of a potential uptick in inflation thanks to tax cuts and minimum wage rising in the coming months.
“Interest rates will come down soon enough, with most experts anticipating a cut in June, or at the latest August. But this won’t mean blue skies all around. While higher interest rates remain a major issue for debtors and mortgage holders, the cost of living is still untenable for many households thanks to slowing wage growth and prices – especially for food – still rising.
“Now is not the time to reduce the base rate; the risk that inflation will rise again is still too great. For those in a position to do so, now is an opportune moment for consumers to take advantage of the available savings opportunities, as we should expect rates to fall as we move closer to the Bank's eventual decision to cut the base rate."
Paresh Raja, CEO of Market Financial Solutions, said: “Yesterday’s inflation data didn’t fall enough to move the needle for the Bank of England, but the property market is already benefitting from the stability that a static base rate provides. Mortgage rates have fallen, buyer demand has risen, and we’ve seen a return to growth where house prices are concerned, all contributing to a solid start to the year for the property market.
“Clearly, buyers are adapting to the higher rate environment, and lenders are being bolder in the rates and products they are offering. This is important - even when the Bank does cut the base rate, we have to be realistic in accepting that rates will not come down as quickly as they went up, so the market has to adjust to a different interest rate environment.
"The early signs are that this is happening, and while inflationary pressures and election uncertainty remain as bumps in the road ahead, there is undoubtedly far greater confidence and optimism permeating through the property market.”
Mark Harris, chief executive of mortgage broker SPF Private Clients, added: “With inflation dipping to 3.4%, speculation is growing as to when the Bank of England will start cutting interest rates. It is time for the rate setters to be bold and start reducing rates at the next meeting, increasing borrower confidence and giving the housing market a welcome boost.
"The evidence suggests we are edging closer to a rate cut. At the last meeting, six members of the Monetary Policy Committee voted for no change in rates, two wanted an increase and one a rate reduction. This time around, eight voted to hold rates, with one voting for a quarter-point reduction.
"We expect base rate to be close to 4% by the end of the year, assuming inflation continues to move towards its 2% target. This would come as welcome news for borrowers struggling with affordability.
"As far as mortgage pricing is concerned, what the Bank of England does with base rate is only part of the picture. If Swap rates, which underpin the pricing of fixed rate mortgages, edge further downwards, then lenders will introduce cheaper mortgage rates, increasing the choice for borrowers at more palatable pricing. Lenders are certainly keen to lend and want to do more business after a disappointing 2023."
