Bank of England Holds Interest Rates at 5%

Following the conclusion of the Monetary Policy Committee, the Bank of England has decided to keep interest rates at 5%.

The decision comes as inflation remains stubbornly above the Bank’s target of 2% at 2.2%. The Bank is reluctant to cut rates while inflation is above target in case it starts to rise again.

The Governor of the Bank, Andrew Bailey, stated it was ‘vital’ inflation remained low, saying, ‘we need to be careful not to cut too fast or by too much.’

This follows the Bank’s previous decision to cut rates from 5.25% in August, the first reduction since rates started to rise in 2021 and 2022 following the pandemic.

The committee voted to retain rates at 5% by eight members to one, with that sole member preferring to cut interest rates by 0.25% to 4.75%.

This follows the Federal Reserve’s decision to cut interest rates by 0.5% to the range of 4.75%-5% in the US. If inflation remains under control in the UK and drops below the 2% target, the Bank is expected to follow suit in November at the next committee meeting.

The Bank said it was taking a ‘gradual’ approach to loosening monetary policy as the year progresses.

However, with inflation expected to rise slightly towards the end of the year, whether this happens will depend on how much or if inflation rises at all.

What does this mean for homeowners?

If you have a mortgage, this decision means the rates you pay on your mortgage repayments will likely remain the same, depending on your type of mortgage. Some lenders may decide to cut their rates in anticipation of the bank potentially cutting rates at their next meeting.

That said, interest rates on any new mortgage deals will likely remain high. If you plan on remortgaging in the next few months, it might be worth considering whether to wait until the next committee meeting in November to see if rates are cut.

It’s been a tough time for homeowners in recent years, especially following Liz Truss’ mini-budget in 2022, which resulted in rising mortgage rates and the Bank increasing interest rates to quell panic in the financial markets.

Homeowners will be looking for interest rates to come down following the next committee meeting for some relief from the cost of living crisis and the rate rises of recent years.

What does this mean for prospective homeowners?

The Bank’s decision contains good and bad news if you’re a first-time buyer. The good news is that interest rates on saving accounts will remain high, which you can use to maximise your mortgage deposit.

The bad news is that mortgage rates are unlikely to change much if you’re looking to purchase a house in the coming months. So, if you’re holding out for better deals, waiting until after the next committee meeting might be a good idea.

Renters are also likely to be disappointed with the Bank’s decision, as landlords sometimes raise their rent to meet higher repayments. So, some landlords could raise rents to meet their repayments without a reduction in the interest rate.