Threadneedle Street chose to refrain from its first base rate cut since 2020, keeping rates steady at 5.25 percent on Thursday. Andrew Bailey, the central bank's governor, affirmed that he would not yield to political pressure to decrease the interest rates that are currently burdening mortgage holders.
Despite the Bank expressing more optimism in its inflation and UK growth forecasts compared to earlier this year, and with a second member of its 12-strong Monetary Policy Committee (MPC) voting to cut rates, experts remain divided on when the anticipated reduction will materialize.
While many analysts anticipate the cut to happen next month, others cautioned that Thursday's decision might only serve as a "dress rehearsal" for a cut in August. Nevertheless, experts found encouragement in Bailey's signals that the Bank could act preemptively in response to the US Federal Reserve.
Lewis Shaw of Shaw Financial Services told The Independent that Thursday's announcement would likely be unwelcome news for those planning to take out or renew a mortgage. "We’re unlikely to see any meaningful change with fixed-rate pricing, so the mortgage pain for many continues." he said.
"However, the minutes contained some interesting points that should give us hope of a cut in the coming months. Most importantly the reference to a divergence in monetary policy between the US and other major economies. This could well be the signal that the BoE will move before the Fed.
"If I were a betting man, I think there are good odds the [European Central Bank] will cut in June, and the BoE will follow suit in August as long as they feel inflation is still going in the right direction. So, even though we’re not yet out of the tunnel, perhaps we’re starting to see the light at the end of it."
Riz Malik of R3 Mortgages agreed that, given the split vote on Thursday, "June’s decision may be a dress rehearsal for a cut in August."
"The first base rate will significantly boost confidence in the UK property market, no matter the scale of the reduction,” he said, adding: “In the meantime, the UK mortgage market will continue to limp on until we see that initial reduction or further economic data comes to light which suggests it is on its way."
Interest rates serve as a tool to help curb inflation, which sharply declined from double-digit highs until 2022 when energy costs surged and the cost-of-living crisis peaked.
The Consumer Prices Index (CPI) inflation rate dropped to 3.2 percent in March, according to the latest official figures. On Thursday, the Bank of England slightly revised its forecasts to indicate that inflation would dip below the Bank's 2 percent target between April and June, but rise again to 2.6 percent later this year.
However, the Bank indicated that it still awaits further progress on factors such as services inflation and wage growth, which have remained persistently high at around 6 percent, before considering rate cuts.
"Before our next meeting in June, we will have two full sets of data – for inflation, activity and the labour market – that will help us in making that judgement afresh," Bailey told reporters. "But, let me be clear, a change in bank rate in June is neither ruled out nor a fait accompli."
Suren Thiru, economics director at the Institute of Chartered Accountants, criticised Thursday's decision as a "missed opportunity to provide much needed relief for those people struggling with their mortgage bills and businesses facing numerous cost pressures."
"The Monetary Policy Committee remains unnecessarily hawkish on loosening monetary policy, given rapidly receding inflation, which risks subduing the recovery from recession by keeping borrowing costs high for too long." he said.
Jonathan Rolande, from the National Association of Property Buyers, warned that while Thursday's decision to keep rates high, rather than risk overheating the property market, was understandable, the market "has been confidence-free since September 2022, when rates began their upward climb."
"Sometimes, being on the frontline gives a better view than the generals see back at HQ. I see a fragile market with no reason to overheat since September 2022. However it needs an injection of optimism.
"Yes, prices are still high, rents too. But the signal of a rate reduction would have encouraged lenders to reduce their own recently increased lending rates and allow more first time buyers to get out of the rental trap. It would encourage developers to borrow and to build.
"Without a rate cut this month, or very soon, the market looks set to stagnate this winter. Something that isn’t good news for anyone in the property sector or the country."
