BoE keeps rates unchanged at 3.75%; experts respond

The BoE has kept rates unchanged at 3.75% as expected. A key takeaway is the 7-2 vote split, with Greene and Pill continuing to vote for a 25bp hike.

Markets had expected a hold, but having two members still arguing for tighter policy reinforces the idea that the MPC remains concerned about inflation persistence. That message was strengthened by Bailey’s comments on energy-driven inflation pressures and the repeated emphasis on acting quickly against any signs of second-round effects. What is perhaps most important for markets is that the BoE’s updated projections were less dovish than they appear at first glance. While the Bank lowered its near-term inflation forecast and upgraded underlying growth expectations, it also stressed uncertainty around energy prices and made clear that inflation could still exceed 3.25% later this year. The message is that inflation risks have eased somewhat, but not enough to justify a clear easing bias.

Despite the hawkish undertones of the BoE statement, sterling weakened sharply against the dollar, the euro, and the yen following the decision. The move suggests markets focused less on the 7-2 vote split and more on the Bank’s decision to lower its inflation outlook and acknowledge progress on disinflation. However, the decline in GBP does not necessarily reflect a dovish repricing of UK rates. Indeed, markets continue to price in the possibility of a rate hike by year-end, supported by the dissenting votes from Greene and Pill, the MPC’s emphasis on second-round inflation risks, and Bailey’s warning that higher energy prices could still feed through into broader price pressures.

The FTSE 100’s reaction is likely to be more mixed. While a higher-for-longer rate environment tends to weigh on interest rate-sensitive sectors such as housebuilders, real estate and utilities, the BoE’s more optimistic growth outlook could offer support to economically sensitive stocks. Given the index’s heavy weighting towards global commodity producers and defensive companies, however, its performance may be driven more by sterling and broader global market trends than by the BoE decision itself.

Daniela Hathorn
Senior Market Analyst
capital●com

Rate Hold Gives the Housing Market a Steadier Footing for Summer

Kevin Shaw, National Sales Managing Director, LRG

The Bank of England’s decision to hold rates at 3.75% is better news than we anticipated even a week ago. After a year in which the economic mood music has lurched from anticipating numerous rate cuts to as many rises, this stability is extremely welcome.

Inflation is still 0.8% above the Bank’s 2% target and there is likely to be a lag in its reduction as a result of recent global instability. But the picture is materially better than it looked just a few weeks ago. If the ceasefire in the Middle East holds and oil prices continue to ease, that should feed gradually into confidence, costs and consumer behavior.

In the housing market, the sentiment is important because buyers do not look at house prices alone – they look at mortgage affordability, energy costs, the many other costs that come with buying a new property, and of course the future direction of the market. And the mortgage market has already started to respond: swap rates have moved down and we are edging closer to seeing more mortgage products beginning with a three.

From LRG’s perspective, the market is looking up. Across our brands, new sales agreed are up 16% year-on-year for the first two weeks of June and offers are up 5%. That tells us that sellers are becoming more realistic and the number of serious buyers is increasing.

For first-time buyers, this is encouraging. Mortgage rates have not risen as many feared and lenders are showing more flexibility on deposits and income multiples. For sellers, the good news is that activity is returning, but pricing still has to meet the market.

Sentiment is not a fluffy concept in property. An increase in sold signs, whether on the street or online, is perhaps the most powerful factor in encouraging both sellers and buyers to commit to a move. This is exactly what the market needs as it enters the summer months.

So while today’s decision is not yet a green light for the market, it is certainly a move away from the amber flashing nervously.

Sarah Thompson, Group Financial Services Director, Mortgage Scout, part of LRG

“Today’s decision to hold the base rate brings some genuinely encouraging news for borrowers. Inflation has come in lower than many of us expected, which is a positive signal, and we are already seeing swap rates ease slightly as a result. A number of major lenders and building societies have started to move their mortgage rates down in response – small movements, but the direction of travel is welcome.

“That said, the full picture is more nuanced. The current inflation figure does not yet reflect the energy price increases due to come through in the third quarter of this year, and the Bank of England has flagged that it expects inflation to tick up again as a result. The European Central Bank raised its rate last week, which might have suggested further pressure here – but the Bank of England’s view is that by choosing not to cut in recent months, the UK has effectively already accounted for that. The message is one of stability rather than change, and meaningful cuts in the near term look unlikely.

“What this means for borrowers is that the window to secure a competitive rate is open now, but there are no guarantees it will stay that way. With energy costs set to rise and global uncertainty still a factor, conditions could shift. For anyone due to remortgage in the next six months, the advice is clear: act now. You can lock in a rate today and, should rates improve before your deal completes, you can still move to a better option. But you cannot go back and secure a rate that has already gone.

“For those in the property market more broadly, a rate hold is reassuring. No increases means greater confidence for buyers and sellers, and more opportunity to move forward with decisions that may have been on hold. What we are seeing with our remortgage clients is that too many are waiting for a signal that may not come. Preparation is everything – those who act early consistently put themselves in a stronger position.

 
Following the Bank of England’s decision to hold at 3.75%, please find below the latest reaction from Mortgage Advice Bureau, the UK’s leading mortgage intermediary.
 

Ben Thompson, Director of Home Moving Strategy, Mortgage Advice Bureau:
 

“A second consecutive rate hold provides further reassurance to borrowers, providing a sustained period of stability for those looking to buy, remortgage, or move home. For first time buyers, a hold provides greater confidence when budgeting for mortgage repayments, and may encourage more people to move forward with their homebuying plans.

“Our research found that 41% of prospective buyers are waiting for a ‘sign’ before taking the next step, and a sustained period of rate stability could provide some of the reassurance they’ve been looking for.

“Even though we know we have a new wave of inflation and price pressure coming through because of the Iran conflict, the greater concern is likely to be the slow pace of economic growth. This means the outlook for mortgage rates may well soften now, as base rate cuts start to look more likely.

“For borrowers approaching the end of their current mortgage deal, the key message is to review your options early. While many are coming off historically low fixed-rate products and may face higher repayments, lenders continue to compete for business, and there are competitive deals available for those who are well prepared. As always, seeking expert mortgage advice remains crucial to securing the most suitable deal for your circumstances.”

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