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Bank of England holds base rate at 5.25%

Bank of England holds base rate at 5.25%
Christina Hoghton
Written By:
Christina Hoghton

The Monetary Policy Committee (MPC) at the Bank of England has voted to keep the base rate at its current level of 5.25%.

It’s the seventh time running that the group of economic experts has voted to keep rates on hold, and it follows the announcement that inflation has now fallen to its 2% target.

However, the bank noted that Consumer Prices Index (CPI) inflation is expected to rise slightly in the second half of this year.

In its summary of the meeting, the Bank of England said: “Monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit.

“The committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates.”

The MPC voted by a majority of 7–2 to maintain the rate at 5.25%, with two members voting to reduce the base rate by 0.25 percentage points to 5%.

The decision was expected, although some experts and many borrowers had been hoping for a rate cut this month.

Rob Clarry, investment strategist at wealth management firm Evelyn Partners, said: “After three years of elevated inflation, the bank finally hit its 2% inflation target this week. However, it remains too early for the bank to take a victory lap and start cutting rates.”

David Hollingworth, associate director at L&C Mortgages, agreed: “Mortgage borrowers are left waiting once again for the cut to base rate. It must feel like an age that the potential for base rate to fall has been on the agenda.

“Whilst the expectation is still for falls to commence this year, the timing remains uncertain as the bank holds its line of ensuring that inflation is brought to heel.”

What does it mean for mortgages?

The base rate affects some mortgage and savings rates, so the decision to hold means no change for many.

Variable rate mortgage borrowers will see their pay rate stay the same.

This includes tracker rate borrowers, as well as discounted variable rate and standard variable rate (SVR) borrowers.

Those currently on a fixed rate mortgage will see no change for the duration of their current deal, no matter what happens to wider interest rates.

But the problems arise when their current deal expires and they need to remortgage.

That’s because new mortgage rates are still much higher than they were when borrowers last took out a deal, so they are likely to face payment shock as their monthly payments increase.

Sarah Coles, head of personal finance at Hargreaves Lansdown, explained: “For those who need to remortgage in the near future, rates have actually risen fractionally since the last MPC meeting – with Moneyfacts showing the average two-year fixed rate has risen from 5.93% to 5.97%. It’s only a tiny change, but given how many people are holding out for a cut, it’s a gut punch.

“They might have hoped that the prospect of the first rate cut in the next few months would bring some hope. However, with only two pencilled in for the next six months, even more of the one-and-a-half million people remortgaging in 2024 could see their mortgage payments double.”