The Bank of England Monetary Policy Committee (MPC) has announced that its base rate will hold steady at 5%. This news follows the 25 base point deduction in August.
Base rate refers to the interest rate that the Bank of England charges to commercial banks for lending, and influences interest rate charges by banks to customers for borrowing and lending.
Why is the Bank of England holding the base rate?
Adjusting interest rates is a key method through which the Bank of England controls inflation. In essence, lowering interest rates makes it easier for the public to borrow, and thus stimulates spending. This generates higher demand for goods and services which typically increases inflation. Conversely, by raising interest rates and making borrowing more difficult, the banks can curb spending, lower demand and thus lower inflation rates.
Inflation rates for August 2024 were 2.2%, sitting just above the Bank’s target of 2%. This places the Bank of England at a key point in the correlation between interest rates and inflation. The Bank will hope that by holding interest rates firm for the time being, inflation will move closer to the 2% target, opening the door for a potential further base rate reduction in the near future.
What does this mean for homeowners?
The holding of the base rate is unlikely to have any impact on homeowners in the immediate future.
Those with mortgages directly linked to the base rate, such as variable rate or tracker mortgages, can expect their monthly payments to remain unchanged for the time being, providing more stability and predictability.
Those with fixed-rate mortgages will not see any immediate change in their payments as their rates are locked in for a set period. Those looking to remortgage, however, may still find that they will face rates higher than they were previously paying, especially if coming to the end of a 5-year term.
Despite the base rate holding at 5%, the expectation in the market is for further reductions to occur throughout the remainder of the year. This expectation will likely result in lenders continuing minor reductions in their rates in anticipation. Therefore, borrowers may be able to find more competitive rates in the coming months.
At Cooper Associates Mortgages, we strive to find the most competitive mortgage rate for your individual circumstances. Even after your mortgage offer has been issued, we will swap your rate should a more competitive rate become available, provided you are no less than 14 days away from completion.
What does this mean for businesses?
For businesses who rely on loans and credit to finance their operations, a hold on base rate likely means no immediate change to the cost of borrowing, allowing for more predictability in the coming months. Businesses may be encouraged to proceed with expansion plans or capital investment as a result.
For high street retailers, a lack of base rate change may mean consumer spending is likely to remain consistent. While average consumer spending may be down due to a higher cost of living, stability in the base rate means more accurate short-term forecasting is possible.
In light of the MPC’s decision, Thomas Jackson, Managing Director of Cooper Associates Mortgages commented:
“The decision today is what was expected, providing further stability within the market. We are confident that this stability will see lenders continue to slightly reduce rates. Given the Bank of England hold today was as predicted, it still looks very likely that we will see at least one further base rate reduction in 2024.”
At Cooper Associates, our team of expert mortgage advisers are on hand to assist you with all your mortgage needs. Get in touch today to find out how we can help you make your next move.
