The Bank of England has maintained interest rates at 3.75% for the fifth consecutive meeting, as policymakers warned that inflation could rise again later this year due to ongoing geopolitical tensions.
Governor Andrew Bailey acknowledged that inflation has fallen faster than anticipated but cautioned that the conflict in the Middle East continues to drive high and volatile energy prices. “That will cause inflation to rise again later this year,” he stated.
Monetary policy split
The decision to hold rates was not unanimous, with three of the nine members of the Monetary Policy Committee (MPC) voting for an increase. Current inflation stands at 2.6%, above the Bank’s 2% government-mandated target.
The vote marks a shift in the committee’s stance, with market expectations at the beginning of the year anticipating rate increases by this point. However, persistent inflationary pressures and external economic factors have complicated the outlook.
Market implications
Hina Bhudia, Partner at Knight Frank Finance, noted that the MPC has turned “a little more hawkish” since the previous meeting. “Mortgage lenders have already repriced higher to account for this, so borrowers should enjoy some stability in the short term,” she said.
The mortgage market has experienced volatility in recent months, with increased pressure on homeowners amid economic uncertainty. Bhudia added that many lenders are behind their annual targets and will pass on any reduction in funding costs to borrowers when possible.
The outlook for mortgage rates remains uncertain, dependent on developments in the Middle East and whether higher energy prices translate into broader inflation. This comes as the wider property sector faces challenges, with estate agency revenues under pressure from multiple economic headwinds.
Household budgets under strain
The combination of sustained interest rates and potential inflation increases is expected to maintain pressure on household budgets. With demand across the economy remaining relatively subdued, the Bank faces a delicate balancing act between controlling inflation and supporting economic growth.
The next MPC meeting will be closely watched for any shifts in policy direction as global economic conditions continue to evolve.
