The Bank of England (BoE) has maintained the base rate at 5.25% – welcome news for savers but continued pain for mortgage holders and borrowers.
The Monetary Policy Committee (MPC) voted by a majority of 8-1 to maintain the base rate at 5.25%. One member preferred to cut the base rate by 0.25% to 5%.
This is now the fifth consecutive time that the base rate has been frozen at 5.25% – last at this rate in March 2008. It was a move widely predicted by industry experts, particularly following yesterday’s inflation figures, which showed it had fallen to a two-year low.
The Office for National Statistics (ONS) revealed that the Consumer Prices Index (CPI) measure of inflation had eased from 4% to 3.4% in the 12 months to February 2024, with falling food and energy costs contributing to the decline.
Experts suggested the BoE would take a ‘wait-and-see’ approach before making moves to cut rates too hastily, adding that rates are likely to come down slowly in the coming months.
The MPC forecast CPI inflation to fall to slightly below the 2% target in Q2 2024.
Minutes of the MPC meeting read: “The MPC remains prepared to adjust monetary policy as warranted by economic data to return inflation to the 2% target sustainably. It will therefore continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. On that basis, the Committee will keep under review for how long bank rate should be maintained at its current level.
“For all of these members [eight], a further accumulation of evidence on inflation persistence would be required to warrant a shift in the monetary policy stance, with members differing on the extent of evidence that was likely to be needed. They would continue to consider the degree of restrictiveness of policy at each meeting.”
The Office for Budget Responsibility (OBR) projections given at the Spring Budget earlier this month suggested sharper-than-expected falls to the bank rate by the end of this year to 4.2%, with a further fall to 3.3% in the medium term.
‘Softy-softly approach’
Edward Newman, CEO of financial comparison site Finance.co.uk, said many will be left “confused and upset” by today’s announcement, especially the millions facing a huge hike to their mortgage payments when their fixed rate deals end this year.
“With yesterday’s news that inflation had fallen to 3.4% – lower than many had expected – borrowers would be forgiven for expecting to see the Bank of England make a much-needed cut to interest rates.
“The BoE appear to be taking a softly-softly approach to get inflation back to the 2% mark, but it’s hard-working homeowners who are bearing the brunt. More and more mortgage holders will struggle to make ends meet the longer the rate remains uncut, locked into deals charging £100s more each month.”
Nigel Green, CEO and founder of independent financial advisory and asset management firm deVere Group, said: “Households stand to benefit significantly from a rate cut, as lower mortgage rates translate into reduced monthly payments, freeing up disposable income for consumption and savings.
“Additionally, lower borrowing costs make homeownership more accessible for aspiring buyers, thereby stimulating demand in the housing market.
“By easing financial burdens on households, a rate cut would bolster consumer confidence and spending, driving economic growth from the ground up.”
