Expert says central bank’s decision is unsurprising
Despite UK inflation hitting the target 2% in May, the Bank of England (BoE) has decided on Thursday to leave interest rates on hold for the seventh consecutive time.
Voting 7–2, members of the central bank’s Monetary Policy Committee (MPC) opted to keep the base rate at 5.25% – still at its highest level in over 16 years.
The central bank has not changed the base rate since September 2023, although experts have been expecting a base rate cut in the coming months, considering the recent easing in inflationary pressures.
The last significant reduction in the base rate occurred in March 2020, during the onset of the COVID-19 pandemic, when rates were cut from 0.75% to 0.25%, and further reduced to 0.1% shortly thereafter.
Following a period of consecutive rate hikes beginning in December 2021 to counter rising inflation, which reached a 41-year peak of 11.1% in October 2022, the BoE paused the base rate increases as inflation gradually fell, finally hitting the 2% rate target in the latest consumer price inflation data released on Wednesday.
For Nicholas Mendes, mortgage technical manager at John Charcol, the central bank’s decision to hold rates steady today is unsurprising, given its aim to maintain a neutral stance amid the ongoing general election.
“Despite inflation reaching the 2% mark, persistent inflation is evident in the underlying figures for services inflation and core inflation,” he pointed out. “Core inflation has decreased slightly to 3.5%, down from 3.9% in April, showing continued inflationary pressures despite the overall drop in the headline rate. Concerns about persistent price pressure remain, and with wage growth still at elevated levels, the fallback is likely to be slow in the coming months.
“Leading up to this MPC meeting, market predictions indicated a 50% chance of an initial rate cut to 5% by August, however June’s inflation print, and wage growth data will be key to that assumption with a potential total decrease of 0.5% by the end of the year.”
Mendes added that while today’s decision to hold rates steady may be difficult to accept, recent lender movements suggest the end of the era of higher-priced fixed rates may be approaching.
“Borrowers will need to remain patient a bit longer before we start to see high street lenders battling among themselves at sub-4% fixes,” he said. “For mortgage holders nearing the end of their fixed rate period, it is advisable to begin exploring remortgaging options at least six months before their current deal expires.”
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