Bank of England freezes interest rates at 5.25%
The Bank of England’s Monetary Policy Committee revealed its latest decision on interest rates today, with a shock 5-4 vote to pause UK interest rates at 5.25%.
For the first time in almost two years, following 14 consecutive rises, UK interest rates remain unchanged, marking the end of an extraordinary run of increases.
A 15th rise to 5.5% was widely expected, but doubt had been raised after recent figures showed a surprise slowdown in price rises. Data released on Wednesday 20th September 2023 revealed that the consumer price index had fallen to an 18-month low.
Last week, official data revealed that the headline rate of inflation had decreased from 6.8% in July to 6.7% in August. The rate of core inflation had encouragingly dropped from 6.9% to 6.2%, while services inflation also fell significantly from 7.4% to 6.8%.
This unexpected decrease in inflation caused market expectations to change and raised the prospect of the Bank of England pausing its long run of interest rate hikes.
Andrew Bailey, the governor of the Bank of England, released a video to explain today’s decision, commenting: “Inflation is falling, and we expect it to fall further this year. That is welcome news. Our previous increases in interest rates are working.”
The Bank has raised rates 14 consecutive times over the last two years in an effort to encourage saving and reduce spending.
Many were hoping that today’s policy meeting would mark the beginning of the end of this period of increased interest rates, however Bailey was clear that they will keep interest rates “high enough for long enough” to get inflation down to its 2% target by 2025.
Bailey continued: “Let me be clear that inflation is still not where it needs to be, and there is absolutely no room for complacency.”
The BoE had stated that they would raise rates again if there were further signs of persistent inflation, which have been seen in the latest wage and cost of services data along with a recent rise in global oil prices.
The surprise decision to leave interest rates on hold will almost certainly be viewed as a turning point by many and is expected to bring some relief to mortgage borrowers on tracker and variable rates.
Homeowners with mortgages have seen their monthly repayments skyrocket in line with interest rate rises, with mortgage rates increasing to more than 6% for both two and five-year fixed-rate deals.
Many will now be hopeful that this unexpected drop in inflation, and the pause in base rate hikes will allow for better rate options to enter the property market.
Lucian Cook, Head of Residential Research for Savills, commented: “The inflation numbers should bring more economic certainty and confidence to lenders. This will give a further boost to competitive pricing in the mortgage markets and help buyers reliant on borrowing better compete with the cash buyers.”
Industry experts are hopeful that this renewed optimism will give the housing market a much-needed uplift and increase in activity before the year’s end.
