The mortgage market responded positively to the Bank of England’s decision to keep the base interest rate at 3.75% today.
The Bank’s Monetary Policy Committee (MPC) voted unanimously in favor keep the base interest rate at its current level.
The decision to hold the base rate came because most MPC members decided this was the best course to keep inflation on track.
CPI inflation now stands at 3.3%, with the Bank using a target of 2%.
The Bench said: “WWe have kept the bank rate at 3.75% – after cutting it six times since August 2024.
“War in the Middle East has disrupted the transportation and supply of energy, causing its price to rise; this will drive up household fuel and utility prices and business costs. So inflation will be higher than expected, at least in the short term – and the impact will be greater the longer the war and its effect on global energy supplies continues.
“Higher energy costs could also slow the economy as people and businesses will have less money to spend on other things – the MPC is assessing what this will mean for inflation.
“Monetary policy cannot influence global energy prices; but we will ensure that, as we adapt, we do so in a way that achieves the 2% inflation target in a sustainable manner.”
The next MPC decision will take place on June 18.
Mortgage experts said the MPC’s decision to hold the mortgage was difficult but not unexpected.
Ben Allen, director of The Right Mortgage & Protection Network, said: “The MPC’s decision to maintain BBR may be somewhat surprising given the rise in inflation last week, but at the same time members have clearly wondered what an increase would achieve at this point.
“The answer may be very little, short of increasing pressure on mortgage holders at a time when the cost of living is rising. The latest decision to hold gave the committee breathing room, and now that time has passed, it’s clear they still see enough uncertainty to avoid moving too quickly. A stable wait-and-see approach always felt like the most likely outcome.”
Jeremy Leaf, a north London estate agent and former chairman of RICS housing, said: “While it is likely that interest rates will rise again before falling again, today’s rate cut is a nod to the inflationary pressures building as a result of the fallout from the war in the Middle East. “The Bank certainly did not want to do anything that would jeopardize what little growth we have seen in the economy of late, which would clearly prove to be self-defeating.
“In terms of impact on the property market, the effects are likely to be quite minimal, although encouragingly we have seen some mortgage costs starting to fall again. This will certainly help improve confidence, which is still at relatively low levels.”
With the conflict in the Middle East fueling British inflation, markets are already pricing in a rise in the base rate to 4.25% this year. according to SONIA figures.
Harriet Guevara, Chief Savings Officer at Nottingham Building Society, said: “While today’s decision to keep the base rate at 3.75% was widely expected, the bigger story is how much the outlook has changed.
“Just a few months ago, markets were pricing in further cuts. With conflict in the Middle East driving up energy prices and rising inflation expectations, markets are pricing in interest rates rising rather than falling, potentially reaching a level of 4.25% by the end of the year.”