Bank of England holds interest rates at 5.25% despite hopes of cut

Blow for mortgage-holders hoping for drop in repayments – but governor ‘optimistic’ of moving towards cut this year

Jane Dalton
Thursday 09 May 2024 19:00 BST
Related video: In 2022, Mr Bailey explained why rates were raised to 3%

Homeowners hoping for a drop in their mortgage repayments will be disappointed by the Bank of England’s decision to keep the base rate on hold.

The Bank has left the base rate at 5.25 per cent for the ninth month in a row – but it held out hope for borrowers of a cut next month if inflation is reined in.

While the central bank voted to hold rates this time, governor Andrew Bailey said he was optimistic that things were moving in the right direction.

There has been “encouraging” news on inflation, he said, which the Bank expects to come close to its 2 per cent target between April and June.

“We need to see more evidence that inflation will stay low before we can cut interest rates,” he cautioned.

In recent weeks, mortgage rates have been edging up, rising by an average of half a percentage point to 5.93 per cent for a typical two-year fix and 5.5 per cent for an average five-year deal, according to Moneyfacts.

Laura Suter, director of personal finance at AJ Bell, said: “The real impact of this delay will be felt by homeowners, who will have to endure higher rates for longer. It means more people will come off their cheap mortgage deals and onto higher interest rates before the base rate is cut.

“It also means that those people who gambled on a tracker deal at the start of the year, in the hope of imminent rate cuts, will have to pay their mortgage on higher rates for longer.”

Around 1.6 million fixed-rate mortgages are due to end or have already ended this year, according to trade association UK Finance, and some homeowners will be remortgaging onto significantly higher rates.

The FTSE has hit record highs, and UK economic data due out on inflation, wage growth and jobs will be key to whether rates are cut on 20 June.

Interest rates are used to control rising inflation. But in a strong signal that the tide is turning among the rate-setters, two members of the Bank’s nine-person Monetary Policy Committee (MPC) voted for the base rate to be cut by 0.25 percentage points, to 5 per cent.

Swati Dhingra and Dave Ramsden said Consumer Prices Index (CPI) inflation was already on a firm downward path and there was no need to delay reducing borrowing costs.

CPI inflation fell to 3.2 per cent in March, according to official figures, heading towards to the Bank’s 2 per cent target.

Some MPs have tried to increase pressure on the Bank to move faster on rate cuts in the run-up to a general election this year.

But Mr Bailey said the Bank would not bow to such pressure, adding: “We are an independent central bank. We have a very clear remit. It’s our duty to exercise our duty at all times.

“When we are sitting in a room as the Monetary Policy Committee, we never discuss politics ... It isn’t a consideration in that respect.”

The Bank has slightly upgraded its forecast for UK economic growth. In its latest Monetary Policy report, it said gross domestic product (GDP) would increase 0.5 per cent this year and 1 per cent next, both 0.25 percentage points higher than the last estimates published in February.

The base rate hit its 15-year high last August and has remained unchanged since then, disappointing borrowers. Although savers have cashed in with some of the highest returns for years.

Bank policymakers had hiked interest rates 14 times in a row to try to control spiralling inflation, which was deepening the cost of living crisis, particularly as energy bills soared.

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