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Bank of England maintains base rate at 5.25% despite hitting inflation target

In a move that surprised some but aligned with many economists’ expectations, the Bank of England’s Monetary Policy Committee (MPC) voted 7 to 2 to keep the UK base rate steady at 5.25%, just two weeks before the General Election.

Inflation Target Met
Yesterday, figures from the Office for National Statistics (ONS) revealed that the Bank of England had met its 2.0% inflation target. Despite this achievement, core inflation, which excludes energy, food, alcohol, and tobacco, remains above 3.0%, justifying the MPC’s decision to hold the rate.

Jason Ferrando, CEO of easyMoney, commented, “We’ve now seen inflation dip to within the Bank of England’s two percent target but hopes of a rate cut today were probably a tad premature. That said, it’s looking increasingly more likely that one will materialise this summer and this will help to further strengthen a housing market that has seen stability return.”

Economic Impacts on Savers and Homebuyers
The decision to maintain the base rate has implications for both savers and homebuyers. Ferrando noted, “The downside of falling rates is, of course, that savers will now see the interest earned on their nest egg start to dwindle. We’ve already seen the rates being handed down to savers from the big banks start to fall since the base rate has been held and the prospect of a cut will make it all the harder to save for that all-important mortgage deposit.”

Bradley Post, MD of RIFT, also weighed in, saying, “There’s certainly light at the end of the tunnel for the nation’s households who have endured an extremely prolonged period of higher outgoings which has stretched them to breaking point financially. While today’s decision might not be the one they wanted to hear, it will continue to provide a degree of stability and with inflation now falling to two percent, we should start to see the cost of living become more manageable over the coming months.”

Housing Market Reactions
The stability provided by the hold on interest rates has been a key factor in the health of the UK property market. Ed Phillips, CEO of Lomond, remarked, “Stability has been key to the returning health of the UK property market in recent months and this stability has come by way of a freeze on interest rates since last September. While the nation’s homebuyers will have been hoping for a reduction today, the decision to keep the base rate at 5.25% will, at least, continue to steady the ship.”

Marc von Grundherr, Director of Benham and Reeves, added, “No news is good news with respect to today’s decision and the certainty that will come from another hold on the base rate is certainly better than the string of consecutive hikes seen in recent years. We’ve seen mortgage approvals top 60,000 per month for three consecutive months now and this demonstrates that buyer confidence has been buoyed by the stability provided by a hold on the base rate.”

Verona Frankish, CEO of Yopa, echoed this sentiment, saying, “With a seventh consecutive hold on the base rate we look set to enjoy a summer of stability and we’ve already seen the housing market respond with an uplift in both buyer and seller activity. While the election may take centre stage over the coming weeks, it’s unlikely to dampen current market enthusiasm and the outlook for the year ahead is a very positive one considering we’re yet to see a reduction in interest rates.”

Jonathan Samuels, CEO of Octane Capital, criticised the BoE’s gradual approach, “The Bank of England’s slow but steady approach to managing the economy has finally yielded the two percent inflation rate they desired, but it’s fair to say that this has taken quite a while longer than it may have had they acted with greater intent. Given this fact, it’s hardly surprising that we’ve seen another hold today and the nation’s homebuyers will have to spend that little while longer contending with current mortgage rates.”

John Fraser-Tucker, Head of Mortgages at Mojo Mortgages, pointed out the political context, “Naturally, the BoE tends to stay neutral during a General Election, so making a rate change weeks before voters head to the polls could be seen as influencing voters. Moreover, the housing policies of the elected government are likely to impact the outlook for the base rate going forward.”

Nathan Emerson, CEO of Propertymark, commented on the broader implications, “For the housing market it is vital there is further confidence regarding the long-term trajectory of inflation, and this is a stance the Bank of England has remained very open about before any commitment is made to start reducing the base rate.”

In summary, the Bank of England’s decision to maintain the base rate at 5.25% reflects a cautious approach amidst political and economic uncertainties, aiming to provide stability while monitoring core inflation and housing market dynamics.