The Bank of England has maintained the current interest rate at 5.25%, despite a fall in inflation.
Inflation dropped to 3.4% in February – down from 4% a month earlier and the lowest since September 2021, when it was 3.1%.
The positive news yesterday came ahead of BoE’s latest interest rate decision a short while ago.
The Bank of England says its Monetary Police Committee voted 8-1 in favour of keeping interest rates unchanged at 5.25%.
It added that one member preferred to reduce the rate down to 5%.
The last time it made a decision on interest – at the start of February – it voted by a majority of 6-3, also to hold rates.
Bank of England Governor Andrew Bailey says it is “not yet” the time to cut interest rates.
Bailey says he has seen “further encouraging signs” that inflation was coming down, but added policymakers had to be sure that it would fall back to its 2% target and “stay there”.
“We’re not yet at the point where we can cut interest rates, but things are moving in the right direction,” Bailey added.
Industry reaction
Ed Phillips, CEO of Lomond, commented: “Having previously endured 14 consecutive base rate hikes since December 2021, it’s been a case of no news is good news for the nation’s homebuyers of late when it comes to the Bank of England’s decision on interest rates.
“That said, they can be forgiven for feeling a little disappointed that we didn’t see a cut materialise today, particularly given this week’s inflation figures.
“While a hold on interest rates has helped stabilise the market, the cost of borrowing remains a significant obstacle for many and while we’ve seen a strong start to the year, a reduction in interest rates would help to open the floodgates and drive market momentum forward.”
Dominic Agace, chief executive of Winkworth, said: “It is encouraging that inflation data points to a more optimistic outlook in earlier cuts, and so with a bright start behind us and a late election now being mooted, hopes for 2024 are rising for the property market.”
Jeremy Leaf, north London estate agent, commented: “The Bank’s decision to hold rates is not surprising but the pressure is building for a cut sooner rather than later.
“The inflation figure always helps set the trajectory for rates and its present level, with the prospect of further drops, will probably force the Bank’s hand at some point.
“Further falls in the pace of wage growth in particular will contribute to the decision making but we have already noticed mortgage payments at least are beginning to fall again as they are not bound by the same constraints and are certainly helping to build confidence in the housing market to take on debt.”
Amy Reynolds, head of sales at Antony Roberts in Richmond, said: “It is no surprise that the Bank of England has held rates at 5.25 per cent, and we expect the same at the next meeting.
“If the inflation target is hit, we could see a rate reduction as early as June, which in turn will stimulate borrowing if lenders re-price and start offering circa 4 per cent mortgages.
“In an election year, the government will be very keen to be on track with its inflation forecast, as any positivity helps consumer confidence and the property market. The market relies on confidence; stable interest rates mean a stable, albeit relatively dull, market. A rate reduction as soon as possible will therefore be pivotal in stimulating activity in the property market.”
Guy Gittins, CEO of Foxtons, commented: “Homebuyers have been waiting patiently for an interest rate reduction and while it is largely expected to come this year, it seems as though they will have to wait a little longer still. The positive to take is that an air of stability has returned to the UK property market since rates were held at 5.25% last September and this has helped revitalise buyer activity levels in recent months.
“In fact, it’s fair to say that the market has picked up the pace considerably and not only have we seen a 23% increase in sales enquiries versus this time last year, but there’s also been a 19% increase in viewings activity and we reported on 5 March 2024 that we’d seen a 31% increase in the number of offers being accepted.
“The higher cost of borrowing certainly remains an obstacle for many buyers, but there continues to be an abundance of opportunity for those who can secure a mortgage with the help of an experienced mortgage broker like Alexander Hall.”
Sam Reynolds, CEO of Zero Deposit, remarked: “It’s not just homebuyers who were hoping to see rates come down today, landlords were also in need of some property market positivity to help revitalise their appetite for buy-to-let investment.
“Not only have many been suffering at the hands of expensive variable rate products, but all too often they will have been doing so while only repaying the interest on their loan. As a result, they will have seen the cost of their mortgage increase by a far greater margin in the long run compared to those making full monthly repayment.
“With the cut on capital gains tax unlikely to act as the carrot to investors that the government intended, a rate cut would, at least, have reduced pressure on existing buy-to-let investors which in turn would have filtered through to tenants.”
Jason Harris-Cohen, CEO of Open Property Group, stated: “It’s been a month of double disappointment for homebuyers so far, with a lacklustre Spring Budget providing no initiative to transact and now their hopes of a interest rate cut have also been dashed.
Inflation has been heading in the right direction and the property market is showing strong signs of recovery, however, a rate cut would have delivered the shot in the arm it needs to really move forward at pace.”
Marc von Grundherr, director of Benham and Reeves, added: “Continued certainty is no bad thing but homebuyers are crying out for some form of relief, particularly in London where the combination of high house prices and high mortgage rates are dampening purchasing power to the greatest extent.
“Today was the last chance to offer some form of stimulus to help supercharge the spring surge in market activity and while we still expect an uplift in market activity, many buyers will remain on the fence until such time an interest rate reduction materialises.”
