Bank of England Maintains Interest Rates at 5.25%

Posted on Sunday, 24 September, 2023

The Monetary Policy Committee of the Bank of England has voted narrowly, with a 5-4 split decision, to maintain the Bank Rate at its current level of 5.25%. This decision comes after a staggering 14 consecutive rate increases aimed at curbing inflation.

The financial industry had been in a state of uncertainty leading up to this announcement, with speculation rife about the possibility of a 15th consecutive rate hike to 5.5%. However, recent data from the Office for National Statistics (ONS) showed an unexpected drop in the Consumer Price Index (CPI) inflation rate to 6.7% in August.

Andrew Bailey, the Governor of the Bank of England, commented on the decision, emphasizing that while inflation has seen a significant decrease in recent months, vigilance is still required to ensure a return to normalcy. He stated, “Inflation has fallen a lot in recent months, and we think it will continue to do so. But there is no room for complacency. We need to be sure inflation returns to normal, and we continue to take the decisions necessary to do just that.”

The financial industry swiftly responded to the decision, with various experts offering their insights:

Hina Bhudia, Partner at Knight Frank Finance, suggested that the combination of positive inflation figures and the decision to hold the base rate could lead to further cuts in mortgage rates. Borrowers might opt for tracker mortgages over fixed-rate products, as tracker and two-year mortgage rates currently fall within a similar range. The expectation of rate cuts in the future could make tracker mortgages more appealing.

Andrew Gall, Head of Savings and Economics at the BSA, noted that with the recent decrease in inflation and the decision not to raise the Bank Rate, consumers may find a glimmer of hope. Higher rates are now available to savers, and there is a wide selection of savings accounts with attractive rates for all types of savers. Gall encouraged consumers to shop around to maximize their savings.

Nathan Emerson, CEO of Propertymark, saw the decision as a positive development for those looking to enter the housing market. He suggested that interest rate hikes had been effective in stabilizing the housing market and improving affordability.

Paresh Raja, CEO of Market Financial Solutions, welcomed the unexpected decision, stating that it would inject vitality into the market. While borrowers had expected another rate hike, lenders had already begun stabilizing rates, and the lending industry was becoming more confident that the interest rate had reached its peak. Raja also emphasized the importance of lenders and brokers providing clarity and assurance to borrowers to boost confidence in the property market.

Ben Thompson, Deputy CEO at Mortgage Advice Bureau, highlighted that the decision would bring relief to homeowners after 14 consecutive rate hikes. Fixed rates were still falling, and a pause in rate increases would benefit those with variable and tracker rates. Thompson advised borrowers facing financial challenges to consult with mortgage advisers for expert guidance.

Adam Oldfield, Chief Revenue Officer at Phoebus Software, drew a parallel between the Bank of England’s decision and the Federal Reserve’s recent choice to keep interest rates steady. He noted that this decision would be welcome news for mortgage borrowers, especially given the large number of fixed-rate mortgages expiring in the coming months. Oldfield believed that a period of stability would boost overall market confidence.

Gareth Lewis, Managing Director of property lender MT Finance, described the decision as a small victory, bringing much-needed consistency and stability to the housing market. While affordability remained an issue due to previous rate hikes, borrowers would have a clearer picture of future rates, making it a favorable time for property purchases.

Matt Thompson, Head of Sales at Chestertons, stated that the decision marked the end of 14 consecutive rate hikes since March 2020. He expected that one more rate increase might occur to address high inflation, after which rates would stabilize. Thompson predicted a positive response from buyers, who would benefit from greater borrowing cost certainty.

Clare Beardmore, Director of Legal & General Mortgage Club, observed that the Bank of England’s decision to postpone a rate hike would provide relief to homebuyers and those considering remortgaging. She noted that recent reductions in interest rates on some mortgages were indicative of the positive impact of previous rate hikes. Beardmore also mentioned a growing trend of family support for property purchases, emphasizing the importance of seeking professional advice in these situations.

CEO of Octane Capital, Jonathan Samuels, acknowledged the easing of inflation but expressed the view that more decisive action earlier on could have prevented inflation from reaching such high levels. Samuels cautioned against complacency, emphasizing the need for continued vigilance.

Jason Ferrando, CEO of easyMoney, believed that another rate increase might have been viewed as excessive, given the recent easing of inflation. However, he expressed concern that a freeze might not be the right path, as prices had not yet fallen, only slowed their rate of increase. He cautioned against premature relaxation of monetary policy.

Director of Benham and Reeves, Marc von Grundherr, acknowledged that the decision brought relief to homebuyers but highlighted the potential challenge for those reaching the end of fixed-rate terms. Such borrowers could face considerably higher monthly repayments when their mortgage terms expire.

Managing Director of Barrows and Forrester, James Forrester, considered the decision good news for borrowers and expected a notable boost in an otherwise uncertain housing market. He pointed out that mortgage rates were already showing signs of decline, driven by a reduction in swap rates.

Managing Director of House Buyer Bureau, Chris Hodgkinson, expressed the view that despite the rate freeze, potential property buyers might remain cautious due to higher borrowing costs compared to recent years. He noted that sellers could still command good prices in the market but anticipated longer transaction times and increased market uncertainty.

In summary, the Bank of England’s decision to keep the Bank Rate at 5.25% has elicited diverse reactions from experts and stakeholders, with some seeing it as a welcome relief for borrowers and the housing market, while others urge continued vigilance in managing inflation and monetary policy.