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Base rate maintained as speculation for cut grows

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Written by: Shekina Tuahene
07/11/2019
The rate, set by a committee at the Bank of England, affects mortgage and savings rates for consumers
Base rate maintained as speculation for cut grows

The base rate has been held at 0.75 per cent for the tenth month in a row, after the Bank of England (BoE) voted by a majority of seven to two to maintain it.

The minority of two suggests a move in base rate may be on the horizon, as the decision to keep the rate at 0.75 per cent was unanimous in September.

In its last meeting which was held before the UK was expected to leave the EU, the Monetary Policy Committee (MPC) said it expected rates to be kept low amid ongoing political uncertainty.

Later that month when speaking to local businesses in Barnsley, MPC member Michael Saunders implied that the next base rate move would be down rather than up.

Cut in event of Brexit delay

Alex Maddox, capital markets and digital director at Kensington Mortgages, said: “In the current environment, it would have been a very hawkish move to cut rates.

“It now looks increasingly likely that a rate cut may happen in the new year to support the economy if Brexit is delayed again and this impacts businesses and investment.”

Frances Haque, Santander UK chief economist, added: “If Brexit is postponed again, continuing the uncertainty, the MPC may wish to act to bolster the economy.”

Founder and CEO of REL Capital, Andy Scott said that the prospect of a cut was “great news for business” and said the industry could “continue to look forward to cheap money”.

Inflation and GDP

In its meeting which ended on 6 November, MPC said inflationary pressures were expected to lessen in the near term, declining by 1.25 per cent by the spring. The Consumer Prices Index inflation measure held at 1.7 per cent in September, its lowest level since 2016.

The MPC also predicted UK gross domestic product (GDP) growth to pick up during 2020, supported by “easier UK fiscal policy” and a “modest recovery in global growth”.

UK GDP had increased by 0.3 per cent in the three months to August, compared with 0.1 per cent in the three months to May.

BoE’s estimate for GDP growth in 2019 Q3 has now been revised up to 0.4 per cent, from 0.2 per cent at the time of the committee’s previous meeting.

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