The Bank of England has kept Bank Rate at 3.75% amid concern that higher energy costs could push inflation upwards later this year.
The Monetary Policy Committee voted by six to three to leave the rate unchanged at its meeting ending on 29 July. The three dissenting members favoured an increase of 0.25 percentage points to 4%.
The Bank said crude and refined energy prices had remained volatile and above their levels before the conflict in the Middle East. It warned that the scale, duration and wider economic effects of the energy shock remained uncertain.
Consumer price inflation has fallen to 2.6% since the previous meeting, but is expected to rise later this year as higher energy prices feed through to the economy.
The committee said there had so far been little evidence of higher energy costs producing second-round effects in wage and price-setting. Recent data had continued to show underlying disinflation, while loose labour market conditions and elevated borrowing costs were also expected to reduce inflation over time.
However, the MPC judged that risks to the inflation outlook were tilted to the upside compared with the central projection in its July Monetary Policy Report. It said it stood ready to act as necessary to keep inflation on course to meet the 2% target in the medium term.
STABILITY FOR MORTGAGE BORROWERS
Ben Thompson, director of home moving strategy at Mortgage Advice Bureau, said: “Holding at 3.75% offers a welcome bit of stability amid ongoing geopolitical uncertainty, even if it’s not the cut some were hoping for.
“If you’re a first-time buyer, a steady rate means lender pricing isn’t likely to jump around much in the short term. But deposit requirements and criteria still vary hugely from lender to lender, so finding the right match matters just as much as the rate itself.
“For remortgagers, don’t mistake ‘no change’ for ‘nothing to do’. Lenders price their fixed deals around swap rates, so if your deal ends in the next six months, now is the time to start looking at your options.”
LENDERS EXPECTED TO REMAIN CAUTIOUS
Charles Resnick, chief finance officer at Afin Bank, said: “The Bank of England remains in wait-and-see mode as the various economic and political developments play out, so a decision by the Monetary Policy Committee (MPC) to hold the Base Rate at 3.75% was always expected.
“Higher energy costs will hit customers later in the year, with inflation expected to rise towards 3.5% as a result. The MPC will then need to assess whether higher energy costs have fed into wages, prices and future inflation expectations before deciding about Base Rates, possibly at the November meeting.
“In the meantime, fixed-term savings deposit rates remain above Bank Rate, continuing to offer attractive returns for savers. For mortgage borrowers, lenders are likely to remain cautious as funding costs and mortgage rates remain high, while higher gilt yields and fiscal uncertainty should continue to support disciplined lender prices.”
BORROWERS URGED TO CONSIDER CURRENT DEALS
Enzo Mora, chief executive and founder of The Mortgage Brain, said: “This could be the last hold on interest rates this year if the Middle East conflict continues to be unresolved and the price of fuel increases, contributing to higher inflation. While this isn’t great news for borrowers, lenders are acutely aware of the need to remain competitive.
“Although rates have been creeping up in the last few days, they will adjust back down again and we’re still encouraging our customers to lock into today’s rates to avoid paying more. The new prime minister has ruled out the radical idea of scrapping Stamp Duty in the autumn budget.
“This helpfully kills the ‘will they, won’t they’ instability effect on the property market that we’ve seen in previous years.”
PAYMENT PRESSURES REMAIN DESPITE RATE HOLD
Ryan McGrath, director of second charge mortgages at Pepper Money, said: “A hold gives borrowers a breather, but it doesn’t undo the financial pressure that’s built up over the last couple of years.
“Swap rates, which many lenders use to price fixed mortgage deals, have already moved in anticipation of where the Base Rate is heading, so a hold doesn’t necessarily mean product pricing will stand still.
“Many customers are still rolling off far cheaper fixed rates onto deals that cost them hundreds more a month, and the effective rate on newly drawn mortgages has been drifting upward for months.
“We’re also seeing brokers guide more customers towards two-year fixes rather than the five-year deals that dominated a couple of years ago, which tells you something about the level of uncertainty still built into people’s decision-making. Nobody wants to lock in for half a decade when there’s a reasonable chance rates move meaningfully in either direction before the term is up.
“This is where trusted broker advice, supported by lenders that understand the realities of modern financial lives, is particularly important.
“Against that backdrop, we’re continuing to see steady demand from homeowners considering second charge mortgages to consolidate borrowing and manage their monthly commitments without disturbing an existing deal.
“This includes customers whose income, credit history or wider circumstances may not fit nearly within standard criteria and therefore benefit from individual assessment powered by the data intelligence Pepper provides.
“With the Q4 Budget still to come and a new government setting out its economic priorities, demand for debt consolidation is unlikely to ease, whether interest rates are held or not.”
LANDLORDS FOCUS ON TODAY’S FUNDING MARKET
Martin Sims, distribution director at Molo, said: “Almost everyone expected the Bank to hold rates this month. The more interesting question is how the market has adapted to that reality.
“Inflation is moving in the right direction, but it’s still above target, and there are enough uncertainties around energy prices and the wider economy for the Bank to take a cautious approach.
“Earlier this year there was a feeling that if borrowers just waited a little longer, cheaper funding might be around the corner. We’re hearing much less of that now.
“The conversations we’re having with brokers are much more about making today’s deal work rather than trying to predict tomorrow’s Bank Rate decision.
“There’s a danger in becoming too focused on the next MPC meeting. If a property only works because you’re banking on lower borrowing costs in a few months’ time, it’s probably worth asking whether it’s the right investment in the first place.
“The professional landlords we’re working with aren’t standing still. They’re reviewing portfolios, refinancing where it strengthens cash flow, and continuing to invest where the fundamentals remain strong.”
AFFORDABILITY CHALLENGE CONTINUES
Karl Wilkinson, chief executive of Access Financial Services, said: “The MPC has kept rates steady, but for many borrowers the wait for meaningful relief continues.
“Holding the base rate was widely expected, but affordability remains a challenge for many households. While inflation has eased, higher borrowing costs are still shaping decisions across the mortgage market.
“For advisers, this reinforces the importance of helping clients understand their options and make informed decisions. Greater certainty around future rate movements will be key to helping drive confidence and activity.
“Technology, product innovation and strong advice will continue to transform how advisers support customers through changing market conditions.”
