Interest Rate Decision - all eyes on Bank of England

The Bank of England has kept its base rate at 5.25 per cent but markets forecast this will drop from the summer as inflation nears the 2.0 per cent target.

However the Bank’s monetary policy committee was split this afternoon - two wanted a rise, six wanted the rate held steady, and one argued for a cut. It was the first time since March 2020 that a member voted for lower rates, and the first time since March 2008 that the committee was split three ways over whether to raise, lower or hold.

The split vote has given significant hope that rates will drop sooner rather than later. 

Guy Gittins, chief executive of Foxtons, says: “A freeze on interest rates since September of last year resulted in 2023 finishing with a far higher degree of mortgage market positivity than many had forecast and it’s now clear that this positivity has carried over into 2024. We’ve already seen a promising start to the year compared to January last year, as buyers have returned to the market.

"However, the potential now is that mortgage rates could start to climb following a fourth consecutive decision to keep the base rate frozen at 5.25 per cent and we’ve already seen evidence of lenders increasing swap rates in recent weeks in anticipation of today’s news. This will further add to the air of urgency shown by buyers of late, who have been encouraged by sub 4.0 per cent mortgage opportunities and have been keen to secure them while they are available.”

And Tom Bill, head of UK residential research at Knight Frank, says: “The decision to hold was never in doubt but the fact inflation is due to fall notably faster than previously guided by the Bank of England is good news for the housing market. For anyone buying or remortgaging, the Bank of England’s cautious tone should be weighed against the fact lenders set their fixed rates based on market expectations, irrespective of whether they come true or not. As the economic outlook improves, we expect UK house prices to rise by 3.0 per cent this year.”