REACTION: Bank holds base rate at 5.25% in split vote

The Bank of England held its base interest rate at 5.25% for the fourth time in a row today, but its Monetary Policy Committe was divided on the decision.

It means the rate remains at a 15-year high for the first part of the new year, as the Bank moves cautiously in its battle with inflation.

Split decision

The Bank’s Monetary Policy Committee voted by a majority of 6–3 to maintain the rate at 5.25%. Two members preferred to increase the rate by 0.25%, to 5.5%. One member voted to reduce the rate by 0.25%, to 5%.

Andrew Bailey, the Governor of the Bank of England (main picture), and Huw Pill, Chief Economist, are both believed to favour a hold in the rate.

Downwards

Today’s decision was widely expcted even though there was a surprise increase in inflation during December to 4% from 3.9%.

Most City analysts believe the inflation trend is firmly downwards, with some even saying the Government will reach its target of 2% by April.

Industry reaction

Dominic Agace, CEO at Winkworth, says: “It’s sensible to hold the rate, as while all the indicators point to a return to inflation target by April and rate cuts, it’s important to not get carried away.

“Inflation remains high and to ensure there are no unpleasant surprises, it’s vital that we pursue a steady and predictable path,” he says.

“The property market hates uncertainty and surprises, which was demonstrated by the fall-out as a result of the Liz Truss Budget. A steady approach reducing rates makes for the best approach for a property market that people can predict and so trade in.”

Jonathan Samuels, CEO of Octane Capital, says: “It appears that the Bank of England’s slow but steady approach to managing the economy has finally started to pay off, with inflation falling sharply this week.

“Generally speaking, today’s decision to keep the base rate held should bring further positivity for the economy and the property market, in particular.

“But while it’s likely to stoke the fires with respect to the increasing number of buyers returning to the market in recent weeks, they are best advised to proceed with caution,” he says.

“Swap rates have been gradually climbing so far this year in anticipation of today’s decision and so an ongoing degree of certainty where the base rate is concerned doesn’t necessarily mean lower mortgage rates are guaranteed.”

Guy Gittins, CEO at Foxtons, says: “A freeze on interest rates since September of last year resulted in 2023 finishing with a far higher degree of mortgage market positivity than many had forecast and it’s now clear that this positivity has carried over into 2024.

“We’ve already seen a promising start to the year compared to January last year, as buyers have returned to the market.

However, the potential now is that mortgage rates could start to climb following a fourth consecutive decision to keep the base rate frozen at 5.25% and we’ve already seen evidence of lenders increasing swap rates in recent weeks in anticipation of today’s news,” he says.

“This will further add to the air of urgency shown by buyers of late, who have been encouraged by sub 4% mortgage opportunities and have been keen to secure them while they are available.”

Verona Frankish, CEO of Yopa, says: “Today’s decision won’t necessarily add to the property market positivity seen so far this year, but it certainly won’t diminish it either.

“Whilst the cost of borrowing remains higher than the nation’s borrowers have become used to, they should be reassured that we’ve likely seen the peak where interest rates are concerned and that any future movement will be downwards.

“This should help draw more buyers back to the market and we anticipate that the uplift in market activity seen during the closing stages of last year will continue to build throughout the year ahead.”

Marc von Grundherr, Director of Benham and Reeves, says: “The property market has made considerable strides forward since the Bank of England first held the base rate at 5.25% and so today’s decision will only bring more certainty to buyers, helping to further cultivate the positive market landscape that has been developing.

“Yes, interest rates remain at their highest in over 15 years, however, this isn’t the cause of a diminished appetite for homeownership. Increasing rates, market uncertainty and ever changing mortgage offers are the key deterrent and buyers can now rest assured that the only way is down with regard to interest rates over the coming year.”

Ruth Beeton, Co-Founder of Home Sale Pack, says: “While it’s reassuring to see continued certainty in the form of a freeze on interest rates, it will do little to boost an otherwise sluggish property market which is in desperate need of stimulation.

“Yes, we’ve seen a marginal uptick in mortgage market activity in recent months, however, it remains a challenging environment for buyers and this leading to far longer transaction times, not to mention an increase in the number of sales falling through.

“Hopes of a rate cut later in the year should help, but until they do materialise, the property market is likely to plod along in the state of limbo seen for much of the last 12 months.”

Colby Short, Co-founder and CEO of GetAgent, says: “Today’s decision to hold the base rate at 5.25% marks six months since the last interest rate hike and the overarching opinion is that we’ve now seen the peak in this respect.

“This has helped to stabilise the market and we’ve seen mortgage rates start to reduce, tempting buyers back the fold and increasing mortgage approval numbers in the process.

“This has delivered a much needed shot in the arm to the UK property market and it’s now a far more attractive place to be for the nation’s sellers who have been desperately waiting to make their move.”

Nathan Emerson, CEO at Propertymark CEO, says: “It is positive to see that many people intending to buy their first home or sell their current one won’t be hindered by an increase in interest rates.

“However, it is now time for the UK Government to continue to curb inflation so that interest rates can fall further to help ease the backlash this has had on people’s affordability.

“They should make 2024 the year consumers start to enjoy some confidence again following three years of disruption to the economy.”

John Phillips, CEO of Spicerhaart and Just Mortgages, says: “Even before the recent surprise news on inflation, my expectation was the Bank of England would sit on the base rate once again – even though it should cut.

“While there’s no doubt the bank has much to consider, the danger is it takes too long to make a decision and it eventually comes too late.

“Nevertheless, continuity and stability is a positive, especially for those not on a fixed rate deal.”

Ben Thompson, Deputy CEO at Mortgage Advice Bureau, says: “Inflation has largely been dropping faster than expected, and despite the slight upward tick announced earlier this month, the Bank of England is still ahead of its own inflation projections.

“Regardless, a hold was always the most likely decision – and will continue to give markets confidence that the Bank of England is still on track to cut rates later this year.

“2024 has started positively for the mortgage market, with rate cuts from lenders prompting a surge of activity. There are now many competitive rates available, especially when compared to this time last year.”

Nick Leeming, Chairman of Jackson-Stops, says: “The Bank’s decision to stick to its knitting and hold rates was largely expected by the market, but is still welcome news.

“While bringing interest rates down does encourage greater borrowing which in turn stimulates greater activity, it is important that the Bank of England does whatever is necessary to avoid fuelling inflation.

“The upside of Bank of England’s inaction today provides stability to the market, allowing buyer and seller confidence to build after a subdued year of activity.”

Jason Tebb, President of OnTheMarket, says: “The fourth hold in rates in as many meetings of the Monetary Policy Committee will come as further relief for buyers and sellers.

“It strengthens expectations that rates have peaked and the next move will be downwards, as the Bank of England continues to bring inflation under control.

“Numerous rate rises and the high cost of living have inevitably impacted activity as they have heightened borrower concerns around affordability. That said, the housing market has proved remarkably resilient, with transaction numbers softening rather than falling off a cliff.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “Although improving, the property market remains sensitive and fragile. As a result, as important as today’s rate decision itself is the rhetoric around it.

“Talk is of rates falling during 2024 but by how much, how fast and when?

“The question borrowers are weighing up is whether the recent reduction in mortgage rates is just the beginning, or should they wait longer before taking the plunge?”

Tomer Aboody, director of property lender MT Finance, says: “As rates are held again, confidence is building among buyers and sellers that a rate reduction is on its way.

“This is further proof that runaway inflation is being brought under control.”

Matt Smith, Mortgage Expert at Rightmove, says: “As painful as rate rises have been for many people, there are increasing signs that base rate rises are having a real impact on the economy, and inflation is heading in the right direction.

“Another hold in the base rate today also shows that the Bank will also be cautious not to overshoot base rate rises, and will be keen to maintain the current stability.

“The market appears more robust than last year, evidenced by the fact that the surprise uptick in inflation a couple of weeks ago didn’t derail the downward trend of mortgage rates.”