The Monetary Policy Committee (MPC) has held Bank Rate at 3.75% by a majority vote of 6-3. Three members voted to increase the rate to 4%.
Explaining the decision, the MPC said: “Protracted conflict in the Middle East has contributed to further increases in crude and refined energy prices since the previous meeting, which remain more volatile and higher than pre-conflict. UK CPI inflation increased to 3.1% in August and is likely to rise further over coming quarters.
“Monetary policy is being set to ensure inflation comes down to 2% sustainably as the economy adjusts to the energy shock. The policy stance required to achieve this will depend on the scale and duration of the shock and how it propagates through the economy.
“There has been little evidence so far of material second-round effects in price and wage-setting. However, the risk of such effects, against which policy needs to lean, is greater the longer higher energy prices persist or are more volatile. Activity has been slightly stronger than expected, although soft labour market conditions, and the higher interest rates faced by households and businesses since the conflict began, will act to reduce inflation over time.
“Overall, the Committee judges that the risks to the inflation outlook are tilted to the upside, and more so than at the time of the July Monetary Policy Report, although there remains scope for the outlook to change materially as events in the Middle East unfold.”
The rate freeze was broadly welcomed by commentators in the property sector, but estate agent Jeremy Leaf, a former RICS residential chairman, said leaving rates unchanged is becoming “a little trickier” – and an imminent rise is increasingly likely.
“The impact of an uplift on an already fragile, price-sensitive housing market, would not be helpful”, he explained. Recent house price and mortgage approval figures confirm that a significant recovery is unlikely in the near future. The rising cost of living has made it increasingly difficult for prospective homebuyers to consider moving unless needing, rather than wanting, to do so.”
Andrew Lloyd, managing director at property data firm Search Acumen, said holding the rate is “the sensible call”.
“With more housebuilders slipping into pre-tax losses, wage growth subdued, inflation ticking up, and the nation lying in wait in a now-typical pre-budget hiatus, a rate rise now would have risked a substantial hit to confidence. Threadneedle Street is clearly determined to keep its powder dry for as long as possible, a welcome decision for thousands of homeowners due to remortgage.
“But by signalling that a November increase remains a live possibility thanks to a stuttering economy and yesterday’s inflation data, the Bank of England is giving lenders time to absorb that expectation into pricing rather than springing another shock on the market. This pattern is already taking hold this week: swap rates are being repriced, and mortgage approvals are inevitably declining.
“I think we are going to see this tug of war between debt and growth get much more intense as we approach the Budget. People’s patience is wearing thin with a driving need for certainty, but don’t be fooled: transactions are happening and money is being spent.
“Property markets are adapting to new ebbs and flows: where flat markets are down, house sales maintain; where hospitality declines, logistics improve; and where international investors take stock, domestic money moves in. It’s clear that when sellers take a price hit, some buyers see opportunity. The UK economy still has underlying strength, and emerging technologies should help us build momentum.”
Just Mortgages and Spicerhaart CEO John Phillips agrees. He said: “Even with the news on inflation yesterday, a hold feels like the right call for now.
“For how much longer though is the crucial question. There seems to be no sign of peace or even a truce in the Iran war and while oil prices have eased slightly overnight, they still remain very high and a key driver of inflationary fears.
“This all feeds into borrowing costs and the volatility in swap rates, helping explain the activity we’ve been seeing from lenders recently. We have to be conscious of the fact that the impact of this conflict will likely feed through for the remainder of the year – even if a resolution is somehow achieved.
“It’s been encouraging to see there are still clients making moves. Alongside a modest jump in buyer registrations and listings so far in September, we are seeing clients reviewing their mortgage options.
“While there are those needing to make moves, there are those asking the question – perhaps for the first time – about what it means for them and their circumstances. While rates are changeable, there is still plenty of money out there in the market and lenders willing to lend – particularly as we edge closer to their end of year targets. That fact alone could very well encourage some positive activity.”
Nathan Emerson, CEO at Propertymark, also welcomed the “positive news” and is keeping a close eye on future announcements. He said: “With a backdrop of continued global unease, many aspects of the housing market have become substantially more subdued than normal, with consumers rightly acting with a greater degree of caution before committing to longer-term and high-value borrowing.
“It will be a case of closely watching what might be announced in the autumn budget next month, particularly concerning housing and what support may be offered to first-time buyers, for example.”
For Krystle Kocik, UK co-chief executive officer for PEXA, the news is welcome but only part of the picture.
“A decision to hold rates will be welcome news for homeowners and prospective buyers alike. While affordability remains a challenge, today’s decision should provide some reassurance for those weighing up whether to buy, move or remortgage in an uncertain economic environment.
“However, interest rates are only one part of the home-moving equation. Even when buyers are ready to proceed, transactions can still be slowed by fragmented systems, duplicated effort and a lack of connectivity across the process.
“If we want to support activity and improve outcomes for consumers, the focus must be on removing unnecessary friction from the transaction process. By creating a more connected ecosystem, the industry can do what it always sets out to do – deliver the best outcomes, greater transparency, predictability and certainty at every stage of the journey, helping consumers move with confidence regardless of where rates go next.”
James Bentley, director at Financial Markets Online, explained the decision in the context of global markets: “Central banks in the US and the Eurozone have both increased their base rates in recent days, but the UK has been spared that fate because of the Bank’s more ‘glass half full’ approach.
“The minutes explaining the Bank’s decision concede that inflation of 3.1% is a major worry, but not serious enough to warrant an immediate rate rise.
“Look beyond the headlines of yesterday’s CPI report and you can see the Bank’s point. The lion’s share of the inflationary spike is down to the recent surge in oil prices. Core inflation hasn’t budged and the Bank’s view is that for all the pain high fuel prices are causing, they haven’t triggered significant “second-round effects in price and wage-setting”.”
On the impact on short-term lending, he added: “In coming days we may see swaps settle, which could spur some mortgage lenders to unwind their most recent rate rises.
“Both the decision, and the fact it was as predicted, are good news for mortgage borrowers and rattled stock markets seeking respite from the inflationary doom-loop some had feared.”
