The Bank of England’s Monetary Policy Committee (MPC) today voted to keep the base interest rate unchanged at 3.75%, marking a continuation of its cautious approach to monetary policy amid persistent inflation and a mixed economic outlook.
The decision was made in a closely divided vote, with the Committee voting 5-4 in favour of the hold.
It comes as recent data show inflation still above the Bank’s 2% target but trending lower, and early-year indicators suggesting pockets of modest economic resilience.
Governor Andrew Bailey said the MPC expects inflation to ease further, and although rates were held this month, he signalled that “there should be scope for some further reduction in the Bank rate later this year” if price pressures continue to abate.
Industry reaction reflects a broadly steady-as-she-goes interpretation of the decision.
Alpa Bhakta, CEO of Butterfield Mortgages, commented that today’s hold “is entirely in keeping with the Bank of England’s cautious approach over the last two years”, adding that “for the Prime Central London market, holding the base rate will do little to inspire higher levels of activity. But Bhakta also noted that “the market is in a healthier position than 12 months ago and the potential for future rate cuts remains.”
Darrell Walker, group sales director at Chetwood Bank for ModaMortgages and CHL Mortgages for Intermediaries, echoed the theme of stability, noting that “the mixed economic picture … meant lenders had already priced a hold into their rates” and that stability “will allow the market to build on some of the modest momentum that we’ve seen in recent weeks”.
Other experts emphasised improving confidence in the housing and finance sectors. Tim Parkes, CEO of RAW Capital Partners, said that while a second consecutive cut was always unlikely, “the opening five weeks of the year have … been far busier and more positive,” with rising buyer confidence and demand.
Paresh Raja, CEO of Market Financial Solutions, added that although “calls for the base rate to fall further … remain loud,” the underlying cost of borrowing today is still competitive by historic standards. Raja also stated that while “transactional activity is still somewhat subdued”, property prices are holding firm and healthy demand among buyers and investors across the UK.
Away from the property and mortgage markets, the decision to hold the base rate is also expected to impact the mergers and acquisitions (M&A) space. Hamish Martin, Partner at M&A advisory firm LAVA Advisory Partners, said: “Today’s result underlines how finely balanced the MPC now is, with a weakening jobs market pulling one way and firmer business activity and inflation pulling the other.
“I imagine businesses and dealmakers are all aware that further cuts are unlikely to be far away, though as long as borrowing costs remain restrictive for leveraged transactions, this will keep pressure on debt-led M&A and stretch deal timelines. While improving PMI data suggests underlying momentum, the absence of a clear signal on easing limits confidence. The risk is that policy remains reactive at a time when companies need firmer direction to commit capital and unlock stalled transactions.”
