Will a bank rate cut come this year?
The Bank of England (BoE) kept interest rates steady at 5.25% moments ago, in line with market expectations.
The central bank’s Monetary Policy Committee (MPC) decided to retain the base rate at its 16-year high as the UK economy shows signs of returning to growth.
This is the fourth consecutive time that the rate has been maintained following a series of hikes that began in December 2021, when it was at a record low of 0.1%.
But while the economy has shown resilience in recent months, annual inflation has seen a slight uptick, rising from 3.9% to 4% in December. This increase, though moderate, highlights the persistent challenge of managing inflationary pressures.
“The Bank of England continues to walk a tightrope,” Paresh Raja, chief executive at Market Financial Solutions, commented. “Sticky inflation is making them hesitant to cut rates, but a rise in company insolvencies and the general impact of a higher cost of borrowing on the UK economy is piling on pressure to drop the base rate.
“Either way, we now know the base rate has almost certainly peaked, and it is just a matter of time before it comes back down. This shift has already started to have an impact on lenders and the property market in recent months. Mortgage, bridging and BTL rates all have started to fall, and there are the green shoots of recovery emerging after two challenging years, with early signs suggesting buyer demand and house prices are picking up.
“The bank might hold again – perhaps multiple times – before the cuts come, but the market is benefitting as that seemingly inevitable decision draws closer.”
Considering the sharp downward trend, the possibility that inflation may soon hit the government’s 2% inflation rate target is offering optimism that the BoE will indeed cut the base rate sometime this year.
Goldman Sachs economists, according to a CNBC report, predict a rate cut of 25 basis points in May, followed by further quarter-point cuts at every meeting until the bank rate reaches 3% in May next year.
Nicholas Mendes, head of marketing at independent mortgage broker John Charcol, noted that markets had been pricing in that the Bank of England will hold the bank rate at 5.25%, with any rate cuts to start in June as inflation is expected to slow towards the central bank’s 2% target.
“Despite today’s announcement, mortgage rates are expected to continue to steadily reduce over 2024,” Mendes said.
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