Bank of England makes future interest rate pledge as homeowners face blow

The Bank of England has kept the base rate steady at 5 percent in a move that will come as a blow to borrowers. The Monetary Policy Committee (MPC) showed an 8-1 split favouring the current base rate stance.

Only one member pushed for a reduction of 0.25 percentage points. Despite this, expectations have been set for rate cuts in the future by governor Andrew Bailey in his comments alongside the decision to freeze rates.

City analysts had largely anticipated today's decision. Yet they remain optimistic about potential rate cuts in both November and December, aligning with a hope that inflation will remain close to the Bank's 2 percent target.

Commenting on the outcome, Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, said: "Households pinning their hopes on a second straight rate cut are likely to feel disappointed after the Bank of England decided to hold the benchmark interest rate at 5% following the quarter-point reduction at the start of last month."

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She further noted the firm resolution by the MPC, saying: "The rate-setting Monetary Policy Committee's decisive 8-1 vote in favour of keeping the headline rate at 5 percent means consumers must wait longer before they see further respite from ultra-high borrowing costs triggered by 14 consecutive interest rate rises between December 2021 and August 2023."

The Consumer Price Index (CPI) inflation rate remained steady at 2.2%, just above the Bank of England's target of 2%. But a rise in core and services inflation over the 12 months to August is likely to have caused concern for the central bank, especially after implementing an aggressive tightening strategy to control price increases.

She continued: "Flat economic growth in June and July, following a strong start to the year, along with easing wage growth and falling vacancy rates are likely to have complicated the decision for the central bank as it signals that high borrowing costs are having a dampening effect on the economy. Prolonging this era of high interest rates by keeping rates on pause risks crimping the economy even further.

"With inflation expected to edge up again in the final quarter, driven by a 10% rise in energy bills from October 1, all eyes will be pinned on the BoE's next meeting in November to see if a second rate cut materialises then or whether consumers will have to sweat it out for even longer."

Governor of the Bank of England, Andrew Bailey, said rate cuts are on the cards, stating: "Inflationary pressures have continued to ease since we cut interest rates in August. The economy has been evolving broadly as we expected. If that continues, we should be able to reduce rates gradually over time."

Eric Silvestre, Senior Investment Analyst at Wealthify, remarked on the Bank of England's interest rate decision, saying: "After the latest inflation data, the decision to keep interest rates unchanged at 5 percent was widely expected by the markets. Although headline inflation is close to the Bank of England's 2 percent target, a more persistent services inflation of 5.6 percent serves as a reminder that the fight against rising prices is far from over."

He added: "Investors remain confident that the Bank of England will implement two more interest rate cuts before the end of the year." Nathan Emerson, CEO of Propertymark, commented on the same issue, saying: "Since the initial rate cut a few months ago, many people will have been closely awaiting any further anticipated cuts. However, it remains crucial the Bank of England continue to implement cuts in a controlled and functional manner, as not to fast reverse the economic progress so far."

He further stated: "Bearing in mind yesterday's figures regarding inflation, it is understandable why the decision to hold the base at current levels has been employed. Propertymark remains keen to see full consistency within the wider economy and for any eventual base rate cuts to create a pathway for people that provides long-term stability, confidence."

Peter Stimson, Head of Product at Mpowered Mortgages, commented to say: "The Bank has resisted the temptation to cut interest rates, despite the UK economy flatlining in recent months. As long as there are no major financial shocks before the end of the year, further rate cuts are likely which will bring down the cost of borrowing."

He added: "So while borrowers may have been hoping for better news today, it shouldn't change the gradual downward trend we are seeing in mortgage rates. Fierce competition among lenders is also a major contributing factor, as providers are continually repricing deals to keep up with their rivals."

Stimson concluded by saying: "A return to the days of ultra-low mortgages may be behind us, but the good news for homeowners is that we have passed the peak and deals should continue to get cheaper."