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Category: base rate

Amid much global economic turmoil, the Monetary Policy Committee (MPC) has chosen to maintain a cautious approach by keeping the Base Rate static at 3.75%, for the third time in a row.  

The MPC, composed of nine leading figures within the Bank of England (BoE), has postponed their previous strategy of cutting the Base Rate every few months. What will the implications be for the mortgage market?

Effect on buy to let mortgage market

Mortgage rates are still in a state of flux, though the situation is not as changeable as it was during the initial height of the March market shock. Many lenders are re-evaluating their product ranges very frequently. 

Lenders actually use Swap rates when pricing fixed-rate mortgage products, as these reflect the cost of securing fixed-rate funding and market expectations for future interest rates.

Swap rates often move ahead of changes to the Bank of England Base Rate, because financial markets price in expectations early. Currently, Swap rates are stable, suggesting the market is becoming more settled as well.

Desperate times call for cautious measures

The blockade of the Strait of Hormuz has caused prices of fuel to skyrocket, adding costs to daily life for average British people.

Due to the high proportion of the world’s fertiliser passing through the Strait, food supplies are being threatened, on top of the widely reported fuel shortage.

At such a delicate time, cutting the Base Rate would be risky, due to the sweeping effects it can have on the wider economy. 

In the recent past, UK inflation has edged up, in spite of the MPC’s intentions to curb inflation. Whenever this happens, it only reinforces the MPC’s careful strategy. 

Hawks outnumbered by doves

Before the April Base Rate announcement, major banks expected that BoE chief economist Huw Pill and possibly one other MPC member would likely push for a more ‘hawkish’ strategy, meaning that they would argue in favour of higher interest rates. 

Dr. Christine Mann has also been a vocal hawk among the MPC members, even during the relatively peaceful periods when the committee was comfortable with cutting rates gradually. Meanwhile, BoE governor Andrew Bailey has generally been more of a ‘dove’, keen to encourage cuts whenever possible.

True to these forecasts, there was some dissent within the MPC as Pill alone voted to increase the Base Rate. However, it was also anticipated that the majority would elect to hold, which of course happened.

Because of how the MPC policymaking process is set up, a deciding vote is always guaranteed whenever there are differences of opinion.

There has not been an increase to the Base Rate since August 2023. Another hike, in today’s economy, could have significant impacts on the mortgage market, but experts are less certain of the direction of the Base Rate in the near future.

We will keep you updated on how this latest decision impacts the market, and the most reliable forecasts for future announcements.