Today, the Bank of England (BoE) announced that it will hold its base rate at 5%. The decision was met with disappointment by some but with mortgage rates beginning to fall the overall feeling is that the market is continuing its gradual recovery.
With inflation currently holding slightly above the government’s target at 2.2%, there are good signs that efforts to keep inflation down are working, but there is still some way to go to ensure a stable economy.
The Monetary Policy Committee (MPC) voted by a significant majority of 8 – 1 in favour of maintaining a 5% Base Rate, indicating strong consensus for the bank’s current course of action.
In its statement accompanying the Base Rate announcement, the BoE explained that the MPC considered several cases in reaching its final decision.
“In the first case, the unwinding of the global shocks that drove up inflation and the resulting fall in headline inflation should continue to feed through to weaker pay and price-setting dynamics. The persistence of inflationary pressures would therefore dissipate with a less restrictive stance of monetary policy than in other cases,” the Bank explains.
“In the second case, a period of economic slack, in which GDP falls below potential and the labour market eases further, may be required in order for pay and price-setting dynamics to normalise fully. Domestic inflationary persistence would then be expected to fade away, owing to the opening up of slack from a more restrictive stance of monetary policy relative to the first case.
In the third case, the economy may be subject to structural shifts such as changes in wage and price-setting following the major supply shocks experienced over recent years. The degree of restrictiveness of monetary policy may be less than embodied in the Committee’s latest assessment, meaning that monetary policy would have to remain tighter for longer.
Since the MPC’s previous meeting, global activity growth has continued at a steady pace, although some data outturns suggest greater uncertainty around the near-term outlook. Oil prices have fallen back, reflecting in large part weaker demand. Market-implied paths for policy rates across major advanced economies have declined.”
Last month’s decrease in the Base Rate triggered a slight fall in mortgage rates and helped to push a buoyant property market. Today’s announcement is unlikely to chain lender sentiment, meaning that all eyes will be on what will be announced in Rachel Revee’s October Budget.
I think on the one hand today’s announcement is disappointing, especially as America cut their base rate by a half percent only a few days ago, so we were expecting maybe we’d get a quarter percent today, but we didn’t. However, stability is good, inflation held at 2.2%. They were anticipating it was going to go up a little bit and it didn’t so that was positive. I think it’s fairly certain we’re going to get a base rate cut in November if the inflation rate stays consistently the same. They are expecting a little rise, so as long as it fits in with their forecasting model, then I think we will get another base rate cut in November,” says Edward Mellor CEO, Colin Mellor.
However, It’s still a brilliant market. The reality is that moving home or buying a home, shouldn’t be about where the base rates are, it should be about what’s going on in your life. Are you ready to buy a home? Are you ready to move? And I think the market has been very well balanced between buyers and sellers over the last 12 to 18 months, and currently that still is the case. The danger is, if you wait to make that decision, you could end up in a sellers’ market. If you end up in a sellers’ market, it means you’re likely to be paying more to buy a home in 2025, than you would if you made the decision to buy a home in 2024. So, from an agent’s perspective, whilst that might seem ‘yes please, everybody come and buy a house’ logic says that as the interest rates go down, the house prices are likely to go up. Therefore, the quicker you agree to buy your house, you may be paying a higher interest rate, but you’re paying less on the price of the property. So, the mortgage repayment that you are paying may still end up being less than you waiting to buy a more expensive house at a lower interest rate.”
“Hiking CGT is an anti-landlord tax and we have already seen a sell-off in anticipation of the increase. This further hit to an already low housing supply will drive skyrocketing rents even higher and make it even harder for first-time buyers to get onto the housing ladder. We would urge the Government to instead focus its efforts on more progressive incentives such as CGT breaks for landlords if they sell their properties to tenants or first-time buyers.”
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