Everyone has a view, but it's the Monetary Policy Committee's decision…
High noon is fast approaching for the Bank of England’s Monetary Policy Committee again – that much anticipated moment, every six weeks or so, when its decision on whether to change the base rate is finally revealed.
Last time, of course, the committee announced a cut from 5.25% to 5.0%, a whopping four years since the previous rate reduction, so there’s a lot to live up to with its next decision, tomorrow.
Speculation, favouring a cut, has ramped up over the previous few days, boosted by talk of a more aggressive rate-cutting approach from the US Federal Reserve, and today’s CPI (Consumer Price Index) announcement will do nothing to dampen the industry’s curiosity.
In truth, no-one but the nine members of the MPC, led by Governor of the Bank of England, Andrew Bailey, will know what’s coming before the big hand and the little hand align tomorrow lunchtime, and point north together on the face of Big Ben.
This won’t stop people speculating, of course. Everyone has an opinion, it seems, and Mortgage Introducer is nothing if not a good listener…
Nicholas Mendes, mortgage technical manager and head of marketing at broker John Charcol, suggested a close vote at the upcoming MPC meeting has already been factored into current gilt yields and swap rates.
“However, since the consensus in the market is that the next rate cut will not occur until the subsequent MPC meeting on November 7, an earlier rate cut this time could lead to another swift round of reduction in mortgage rates,” reasoned Mendes (pictured left).
“In any case, the medium-term downward trend in mortgage rates remains clear; the uncertainty lies in how quickly changes will occur. If the Bank holds the rate this week, we can expect a temporary pause in rate cuts but it will be just that: a pause, not a reversal in direction.”
Gerard Boon, managing director at Boon Brokers, nailed his colours firmly to the mast, believing that the MPC’s base rate would remain unchanged.
“It is rare for the MPC to process back-to-back changes to its base rate, unless there are serious underlying inflation issues to address – like we have seen in recent times following surges in inflation,” said Boon (pictured second from left). “The MPC normally like to receive consecutive data sets before making changes.”
Read more: Bank of England rate cut – what does it mean for the mortgage market?
How did the Monetary Policy Committee vote at its last meeting?
Tanya Elmaz, director of intermediaries at lender Together, commented: “I believe that there will likely be one or two small base rate cuts before the end of the year, however I don’t expect that any changes will come on Thursday. Instead, persistent inflation means that we will likely have to wait until next month, or even later, to see any cuts.
“Inflation is always key when considering base rate changes; and the latest figures this week have shown the rate hold steady at 2.2%. While this is much lower than at the peak of the cost-living-crisis in 2022, we’re probably looking at it coming down closer to the Bank of England’s 2% target later in the year, when we’d expect to see base rate cuts.”
The MPC only marginally voted to reduce the Base Rate at its last meeting in August, Boon noted - a 5-4 decision saw the base rate edge down.
“Many of the voting members are still cautious to reduce it,” he deduced.
Gary Clarke, new build manager at broker firm The Mortgage Store was rather more non-committal.
“My thoughts on the base rate are really a bit ‘hands up in the air’,” shared Clarke (pictured centre). “The main narrative seems to be building for a cut in November, but swap rates seem to have priced this in already, having dropped recently - and with the gap between two-year and five-year swaps also narrowing.
“As with all fine margins it could go either way and the case is definitely there for a further cut, but it seems most likely we’ll see that in November.”
That said, if there was a cut tomorrow, Clarke wouldn’t be massively surprised, he said - on the back of wage growth and GDP both slowing.
David Hollingworth, associate director of communications at broker L&C Mortgages said it felt like another cut may take a little longer to come. He believes the Bank of England is keen to moderate expectations of how hard and fast they may be prepared to cut.
“It would therefore currently be expected that rates would be held for now, although swap rates have generally eased as market expectation for rates looks to have improved from only a few months ago,” offered Hollingworth (pictured second from right).
“Much could rest on what happens in the States, where pressure is growing for the Fed to take action. Any changes in outlook that haven’t been read by the markets could have an impact here and ultimately make another cut come sooner or later.”
A market consensus of rates continuing to drop is helping drive the ongoing lender battle on price, he observed.
“This is good news for borrowers, and even if the cut isn’t this week there will be widespread expectation of more to come this year,” Hollingworth said. “That should help to improve confidence for movers as we head into next year and the hope will be for that to boost market activity. Of course, there’s plenty of unknowns that could come in data and notably in the Chancellor’s first Budget.”
Mortgage and protection adviser Serena Smith (pictured right), from Mortgages with Serena, was beautifully to the point in her assessment.
“My personal prediction is that it will again be held, as much as I would like it to be reduced,” Smith declared.
