Bank of England against bright blue cloudy sky

Categories: government and politics | base rate

The Bank of England (BoE) cut the Base Rate to 4.25% on 8th May, matching the expectations of lenders and economists.

Economic news outlets made bold bets for a Base Rate cut, with some reporting 100% (or higher) odds of it happening . To the surprise of many, though, the rate-setting Monetary Policy Committee (MPC) were almost evenly split in their vote, with those in favour of cutting narrowly winning out at 5–4. 

This result shows that MPC members have varied opinions on approaches to the Base Rate, and even the surest forecasts are never guaranteed. 

The thought process

Two MPC members wanted to reduce the Base Rate further to 4%. Two others wanted to maintain it at 4.5%. 

The MPC has a few members who regularly vote more conservatively, i.e. in favour of holds or increases. Unlike previous occasions, there are no reports that anybody suggested to increase the Base Rate this time.

As always, the BoE leadership takes a cautious approach when managing the Base Rate and the knock-on effects on inflation. At the Reykjavik Economic Conference, BoE governor Andrew Bailey reiterated his “unwavering” resolve to maintain a 2% target for inflation. 

According to the summary of the latest MPC meeting on the BoE website, the disinflation strategy is progressing as planned.

The same report said that Donald Trump’s punitive international trade tariffs have caused volatility in global markets, but after careful consideration, they estimated that the effects on UK growth and inflation will not be too damaging. 

Market settled as lenders priced in

Lenders confidently anticipated a Base Rate cut, so they steadily priced it in with more competitive products over the past several weeks. Lenders pay closer attention to Swap Rates, as these project the future position of the money markets. These are currently in a stable position.

While there are expectations for further Base Rate cuts later in the year, the chances of it happening at the next MPC meeting may be slim. The near halfway split in votes on the cut that just happened serves as evidence of this.  

As such, the influx of lower rate products into the market has slowed, and no more widespread pricing reductions are forecast. Private landlords looking to borrow are therefore advised to strike while the iron is hot and secure a great fixed rate deal amongst those available right now.

If you are looking to get a mortgage on a property you own or have an offer accept on, or to explore refinancing options, contact us today.