The Bank of England (BoE) has announced it will hold the Base Rate at 5.25% again this month.
The Bank of England’s Monetary Policy Committee (MPC) voted 6 to 3 to maintain the Bank Base Rate, this follows the same decision in September, when the Base Rate was held for the first time since 2021, after 14 consecutive rises.
The Bank had been raising interest rates to tackle high levels of inflation. The Government sets the Bank a target of 2% inflation, but it’s currently much higher, at 6.7%. The Bank is working towards reducing inflation to 5% by the end of the year.
But the right balance needs to be struck between lowering inflation and keeping the wider economy healthy. Today’s announcement shows the Bank’s belief that its plan to tackle high inflation is working. And that continuing to raise rates may have a negative knock-on effect to households’ and businesses’ finances, further down the line.
The latest MPC forecast market-implied path for rates was adjusted down to maintain at around 5.25% until Quarter 3 2024 and then reduce slowly by 1% to 4.25% by the end of 2026.
Employment growth is weakening with falling vacancies and reduced pressure on recruitment difficulties easing inflationary effects within the Labour market with pay and wage growth expected to reduce. This along with near-stagnant GDP forecasts was a major factor in the decision not to increase the monetary policy pressure on the economy.
CPI inflation also came in below previous projections at 6.7% with this figure predicted to fall to target of 2% by the end of 2025
The Bank of England Summary stated “The MPC will continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term, in line with the Committee’s remit. The MPC’s latest projections indicate that monetary policy is likely to need to be restrictive for an extended period of time. Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures. There are also upside risks to inflation from energy prices given events in the Middle East. Taking account of this skew, the mean projection for CPI inflation is 2.2% and 1.9% at the two and three-year horizons respectively. Conditioned on the alternative assumption of constant interest rates at 5.25%, which is a higher profile than the market curve beyond the second half of 2024, mean CPI inflation returns to target in two years’ time and falls to 1.6% at the three-year horizon.”
What’s happened to mortgage rates recently?
Base Rate increased in August and was held in September, but we’ve actually seen mortgage rates edge down through this period. This is because mortgage lenders were expecting this rise, and had already priced it into the rates they offered to borrowers.
We’ve also seen mortgage rates edge down over the past three months, from their peak at the end of July. The average 5-year fixed rate has fallen from 6.08% in July to 5.38% this week, and the average 2-year fixed rate has fallen from 6.61% in July, to 5.84%. You can check the current average mortgage rates for different terms and deposit sizes here, which we update weekly.
Swap rates – which dictate the underlying costs of mortgages for lenders – have continued to fall, even though we didn’t see a drop in inflation in September. So we can expect mortgage lenders to get even more competitive with their pricing in the coming weeks, and reduce rates even further.
What do the experts think?
Rightmove’s mortgage expert, Matt Smith, said “a second consecutive pause is a good indicator that the Base Rate has reached its peak, which will be reassuring to those looking to take out a mortgage soon. Today’s decision was widely expected, as many of the factors that contributed to the hold in September appear to be continuing. Plus, the drop in energy prices as a result of the recent Price Cap change means we’ll hopefully see a drop in inflation when next month’s figures are released. We’ve now seen the arrival of a sub-5%, 5-year fixed rate mortgage in the important 85% loan-to-value bracket – the deposit size we see for many first-time buyers and home-movers.
Rob Clifford, the chief executive of mortgage and protection network, Stonebridge, said “the mood music prior to this announcement appeared to point to the MPC holding Bank Base Rate due to a number of factors, not least a fall in UK food inflation announced earlier this week and, I suspect, a growing sentiment that businesses and consumers could not tolerate much more in terms of further rate hikes. So, it’s not surprising to see today’s decision, however we must be mindful that holding BBR does not mean a cut in bank base rate will follow anytime soon. A common view is that this could stay at today’s level until the early part of 2025, even if – as anticipated – inflation does fall further.”
Mark Harris, the chief executive of mortgage broker SPF Private Clients, said “as expected, the Bank of England has made the wise and welcome move to hold base rate again at 5.25%. The run of 14 consecutive rate rises before September’s pause have been painful. Today’s decision will raise hopes that base rate has peaked, allowing the dust to settle rather than causing further anxiety and distress for borrowers. Borrowers will be wondering what happens next. Those hoping rates will move swiftly downwards could well be disappointed; we expect a period of around six months during which rates will plateau, followed by a gradual reduction in base rate to ‘normalised’ levels of around 3%.”
Fred Jones, the COO of instant buying firm UPSTIX, said “homeowners may be tempted to breathe a sigh of relief as rate hikes remain paused, but the effects of 14 previous rises have not yet fully fed through to the housing market. Falling prices and low demand are two issues that will continue to be a thorn in sellers’ sides as the Monetary Policy Committee cements its ‘higher for longer’ policy.”
Dominic Grace, a senior advisor at data science company Outra, said “the ‘higher for longer’ approach of the Bank will scupper any notion that, for the foreseeable future, interest rates will return to the freakishly low levels enjoyed by home buyers over recent years. This is not just affecting values, but sales volumes too. Accordingly, agents will now need to work not just harder, but much smarter, to ascertain where they should operate and how they win instructions in a fiercely competitive market.”
Anna Clare Harper, the cchief executive of sustainable investment adviser GreenResi, said “the decision to hold base rate is wise in the context of housing because rate increases since 2022 have still not fed through to prices. Mortgage costs have increased by two to three times for up to 2 million households on variable rates or with fixed rates ending in December. They have also rendered buying a house unaffordable for many. Demand is down significantly, so those who need to sell are negotiating on prices. However, the full impact of higher mortgage costs for households affected has not been felt yet, because house price expectations take time to adjust. Instead, the market is slowing, with transactions down year-on-year.”
Tomer Aboody, a director of property lender MT Finance, said “the Bank of England has wisely held rates on the back of dipping inflation. This should give consumers confidence that inflation is on track to be halved next year, but more importantly it will keep more money in people’s back pockets as they continue to struggle with the high cost of living. Uncertainty around interest rates, which are also much higher compared with recent years, does nothing for confidence and is feeding through to lower level of mortgage approvals for both transactions and remortgaging.”
Jeremy Leaf, a north London estate agent and a former RICS residential chairman, said“extending the pause in the onslaught of successive rate increases is good news for the property market. In present troubled economic times, stability aids confidence, which is so vital to decision-making when it comes to buying and selling property. In our offices, we are finding that many people who want to move are holding off until they see mortgage rates and inflation come down further, with little prospect of further rises.”
What does the Base Rate hold mean for my current mortgage?
Changes to the Bank’s Base Rate can impact how much interest you’ll pay on loans, including mortgages. If you’re on a fixed-rate deal, your monthly payments won’t change until the end of your deal. And if you’re on a variable or tracker mortgage, this month’s Base Rate hold will mean your monthly payments remain the same.
If you’re coming to the end of your fixed-rate mortgage soon, you’ve probably already started to think about the rate you’ll be offered on your next deal. In July, the Mortgage Charter was launched to help those struggling to meet their monthly payments, as well as borrowers who are coming to an end of their fixed rates soon.
Under the Mortgage Charter, borrowers will be able to lock in a new deal up to six months before your expiring deal ends. You can also request a better like-for-like deal with your lender up to two weeks before your new term starts, if one is available.
If you want to know more about what to consider when looking for a mortgage rate, take a look at our article: choose whether a 2 or 5-year fixed could be the right option for you.
When could interest rates start to drop?
The Bank of England’s Monetary Policy Committee meets about every six weeks to discuss and vote on whether interest rates should go up or down, or stay the same.
Though signs are showing that Base Rate is at its peak, it is likely to remain flat for most of 2024, before starting to drop. History has shown that after interest rates have increased over time, they have remained flat before starting to come down. So we might not expect to see Base Rate start to come down until the latter half of 2024, at the earliest. But this could move forward or backward, depending on changes in the broader economic environment.
The next decision on interest rates will be announced at 12pm on 14 December 2023.