The Bank of England’s Monetary Policy Committee (MPC) has come within a whisker of cutting interest rates, voting by a narrow 5–4 majority to hold Bank Rate at 4%.

Four members voted to reduce the rate by 0.25 percentage points to 3.75%, underlining growing confidence that inflation is under control and that monetary policy could soon begin to ease.

According to the MPC, CPI inflation is now judged to have peaked, with progress on underlying disinflation continuing. The restrictive stance of monetary policy has helped to slow pay growth and services inflation, while subdued economic activity and emerging slack in the labour market continue to support the downward trend in prices.

The Committee noted that the risks around meeting the 2% inflation target are now more evenly balanced. The threat of persistent inflation has diminished, while weaker demand presents a greater downside risk to medium-term price growth. However, policymakers said more evidence is needed before making further adjustments.

The MPC also signalled that if progress on disinflation continues, Bank Rate is likely to follow a gradual downward path, though the pace and scale of future cuts will depend on the economic data ahead.

MARKET REACTION

John Phillips, CEO of Just Mortgages and Spicerhaart, said: “Given the central bank’s penchant for caution, a cut to the base rate felt unlikely this close to the Budget.

“There was certainly scope for one though with recent inflation data performing better than expected and growing confidence that it has likely reached its peak. Add in the gloomy economic picture and you can certainly make a strong argument.

“As has been the case in recent months, the Budget is the elephant in the room and the unpredictability surrounding it is understandably irking rate setters. Whether we’ll see an early Christmas present from the MPC next month is still hard to predict with any real confidence.

“Even so, there have been plenty of positive headlines coming out of the mortgage market with a drop in rates and cuts from lenders in all areas of the market. Resilient mortgage approvals and transaction figures show many borrowers are still getting on with the task at hand – despite much noise surrounding the Budget.

“Brokers should absolutely take note and be there to provide the necessary advice and support. Above all, we shouldn’t underestimate the critical role we play in nurturing confidence and facilitating transactions.”

BUDGET OVERSHADOWING EVERYTHING

Charles Resnick, CFO at Afin Bank, commented: “No surprises in today’s decision by the Bank of England to hold the base rate, but you can’t escape the shadow of the upcoming Budget looming over proceedings.

“Following the unusual approach by Chancellor Rachel Reeves to make a ‘Scene Setter’ speech this week ahead of the Budget, tax increases are expected in the statement on 26 November, which would break the government’s manifesto pledges. What kind of tax rises and who they would impact the most is still unknown, as is any insight into other measures she will announce.

“As a result, economists and the markets are holding their breath, so a further base rate change in December can’t be ruled out, although it is looking more likely for next year.”

GROUNDS FOR OPTIMISM

Steve Cox, chief commercial officer at Fleet Mortgages, said: “While the MPC chose to hold BBR at 4% today, the trend in mortgage pricing tells a more optimistic story. Mortgage rates have been falling in recent weeks and we expect that to continue across November. Regardless of the MPC’s decision, buy-to-let lenders, including Fleet, have been cutting rates as swaps and funding conditions improve, and this provides an opportunity for advisers and landlord clients to engage now rather than wait.

“With the Renters’ Rights Act now passed into law, landlords face a fresh set of compliance obligations and responsibilities that are likely to come with added costs. Whether it’s meeting new minimum standards or adjusting to tenancy reforms, financial planning is essential, and any savings achieved through more competitive mortgage pricing will help landlords manage these pressures.”

CAUTIOUS STABILITY

Tony Hall, head of business development at Saffron for Intermediaries, added: “The Bank of England’s decision to hold the base rate at 4% follows one of its most finely balanced policy meetings in months, as easing inflation and a cooling labour market fuelled debate over the need for lower borrowing costs. With this being the final rate decision before the Autumn Budget, many will see it as a signal of cautious stability amid shifting economic conditions.

“With some lenders already trimming fixed-rate mortgage pricing, borrowers may start to see greater choice in the months ahead if price pressures continue to ease. While market activity remains measured, signs of renewed confidence suggest the housing sector could see a modest uplift if Budget outcomes prove less disruptive than feared.”

AS EXPECTED

Raphael Benggio, director of bridging at MT Finance, said: “The decision by the MPC to maintain interest rates at 4% was expected. While inflationary pressures seem to be stabilising, maintaining rates also provides some reassurance to investors and the property market in general.

“Although a rate reduction before Christmas would be a welcome boost to the economy, it could be that the MPC are holding out until the Autumn Budget is delivered before making a decision regarding cuts.”

NEED FOR PATIENCE

Paresh Raja, CEO of Market Financial Solutions, commented: “No pleasant surprises today then. With consumers, investors and businesses all braced for the Budget at the end of the month, a cut to the base rate had the potential to galvanise the property market. But there is simply too much political and economic uncertainty at present.

“So, for now, we have to be patient, focus on supporting brokers and borrowers to navigate complexities in the market, and be ready to adapt post-Budget so the property sector can push forward.”

TOO SOON

David Hollingworth, associate director at L&C Mortgages, concluded: “Only a couple of months ago it looked as though homeowners should give up on the chance of another base rate cut before the end of the year. The better-than-expected rate of inflation for September has helped to change that, opening the door to a further rate cut coming sooner than previously forecast.

“The MPC has decided that it’s too soon for that cut to be made today but the decision was tight at 5–4. That will only further solidify the market’s belief that December will bring another cut, as long as there’s no nasty surprises in the meantime. Even though base rate has held, there is still good news for mortgage borrowers as funding costs have eased and lenders have already begun trimming fixed rates.”