The Bank of England has kept Bank Rate at 3.75%, giving property lenders and borrowers a measure of stability as energy costs threaten to lift inflation later this year.
The Monetary Policy Committee voted by six to three to maintain the rate at its meeting ending on 29 July. Three members supported an increase of 0.25 percentage points to 4%.
Consumer price inflation has fallen to 2.6% since the committee’s previous meeting, although the Bank expects it to rise later this year as higher energy prices pass through to the economy.
Crude and refined energy prices have remained volatile and above their levels before the conflict in the Middle East. The Bank said the effect of the energy shock on the UK economy remained uncertain, with the required monetary policy response depending partly on its scale and duration.
The MPC said there was little evidence so far of higher energy costs producing second-round effects in wages and prices. However, it judged that risks to its inflation outlook were tilted to the upside and said it was ready to act as necessary to keep inflation on course to meet the 2% target.
BORROWERS GAIN A PERIOD OF CONTINUITY
Ben Nichols, chief executive of RAW Capital Partners, says: “This decision will come as a relief to borrowers. Such has the turn around in economic conditions been in the past six months that while previously the property market was expecting steady base rate cuts, today a hold feels like a victory.
“While strikes in the Strait of Hormuz have added upwards inflationary pressure and oil prices remain volatile, the annual inflation rate has been slowing more than expected in recent months. This has allowed the MPC to provide some continuity for brokers and borrowers by holding interest rates for the fifth consecutive time.
“Such stability is to be welcomed during a period of political and economic volatility.
“But there remain doubts as to how long we can stay in this holding pattern. Many economists expect interest rates to rise later in the year.
“The extent of that rise will be determined by several key factors, most notably: how the conflict in the Middle East unfolds and what this means for oil prices, and how the market responds to the policies of the new Andy Burnham government, including the Autumn Budget.
“Lenders and brokers must be agile in responding as these events unfold throughout the second half of the year, ensuring borrowers have both the support and products they need to act with confidence.”
ENERGY SHOCK HAS YET TO DRIVE PERSISTENT INFLATION
Duncan Kreeger, chief executive and founder of commercial mortgage lender and bridging specialist TAB, says: “The Bank of England didn’t need to raise rates today and it knew it.
“Yes, the collapse of the US-Iran ceasefire pushed European gas prices to levels not seen since the early days of the conflict. But oil has fallen sharply on renewed hopes for peace.
“With resolution back in sight, the MPC has room to hold.
“There’s little sign the energy shock is feeding through into persistent price pressure. CPI has undershot forecasts for three months running, easing to 2.6% last month.
“Wage growth is slowing. Food price rises are softening.
“The Bank has shown real patience since the war in Iran began. That it’s continuing to do so is good news for lenders, for brokers and for borrowers alike.”
FUNDING MARKETS MOVE AHEAD OF THE MPC
Steve Cox, chief commercial officer at buy-to-let lender Fleet Mortgages, says: “The Bank of England’s decision to hold Bank Base Rate at 3.75% feels like a continued common sense approach given the current backdrop.
“While inflation remains a concern, and the renewed conflict in the Middle East and future energy price hikes are likely to push it higher in the months ahead, there are still enough questions surrounding wider economic growth levels to justify keeping rates where they are for now.
“The decision will certainly be welcomed by the new prime minister and chancellor, who have set an early stall out to ease the cost of living rather than adding to it, and will not have wanted to see monthly mortgage bills rising for some so soon.
“From a buy-to-let perspective, today’s decision should not be viewed in isolation because the mortgage market has already been responding to changing economic conditions over recent weeks. Higher swap rates and funding costs have prompted a number of lenders to increase pricing, meaning mortgage rates have effectively been moving ahead of the MPC.
“For landlords, particularly those approaching a remortgage or considering their next purchase, waiting for greater certainty may not prove to be the right strategy. The next MPC meeting is not until September, a great deal can happen between now and then, and the direction of mortgage pricing will be determined just as much by funding markets and geopolitical developments as it will by Bank Base Rate itself.
“I would suggest that advisers make clear to clients that the time to act is probably now rather than adopting a wait and see attitude.”
SMES CONTINUE TO SHOW RESILIENCE
Phil Hughes, deputy managing director of Paragon SME Lending, says: “Despite another period of turbulence with geopolitical conflict in the Middle East and a changing government on home soil, today’s figures from the ONS show that British businesses have continued to demonstrate resilience.
“In a challenging market, business creations increased by 2.2% year-on-year and, importantly, outpaced closures during the quarter.
“There are warning signs however, with the rise in business closures across most sectors serving as a reminder that many SMEs face significant ongoing pressures.
“Comparing across sectors, it’s encouraging to see strong growth in new businesses across construction and professional services, indicating growing confidence in industries critical to investment, development and growth.”
STABILITY SUPPORTS BORROWER PLANNING
Buster Tolfree, managing director of mortgages, buy-to-let and bridging at United Trust Bank, says: “Holding Bank Rate at its current level is the right decision given the level of uncertainty facing the UK economy.
“While inflation has eased significantly, there remain a number of domestic and international factors which could influence the outlook over the coming months, from ongoing geopolitical tensions to a new government still setting out its economic agenda.
“For borrowers, stability is valuable in itself. A hold gives households, businesses and lenders greater confidence to plan ahead without introducing further uncertainty while the wider picture becomes clearer.
“The mortgage market has remained competitive and, provided inflation continues to move in the right direction, we would expect lenders to remain focused on supporting customers with competitive products and good service.
“Today’s decision provides a period of welcome stability while policymakers assess how these known and unknown risks develop.”
