This information should not be interpreted as financial, tax or legal advice. Mortgage and loan rates are subject to change.
Category: base rate
On 1st August 2024, the Bank of England (BoE) confirmed that the Base Rate would be coming down to 5%, the first publicised decrease since 2020. Now the dust has settled, we analyse how this change has already affected the Private Rented Sector (PRS), and what may be on the horizon.
The decision, which was put down to a vote by the Monetary Policy Committee (MPC), was carefully deliberated upon, because a very significant portion of members voted to keep it the same. The BoE’s chief economist Huw Pill advocated to hold the Base Rate at 5.25%, but was ultimately outvoted.
In contrast, the governor of the BoE, Andrew Bailey, was among those that voted for the cut. However, as the divided vote would attest, the decision to cut the Base Rate has been made with caution. Bailey has expressed concern about making further cuts “too quickly or by too much”. As such, the 0.25% cut was expected by some economists.
The backdrop to the current Base Rate
Spiralling inflation resulted in successive Base Rate increases throughout 2022 and 2023, finally peaking at 5.25% in August 2023. Since that time the rate remained stable for a year – until this month’s reduction to 5%.
The Base Rate decreasing reflects that the rate of inflation has reached the BoE target of 2%. However, inflation is expected to rise again to 2.75% later this year, so the approach to cutting the Base Rate must be carefully considered. The longer term view is that inflation will subsequently come down again in 2025, to the 2% target, but a lot can happen in the world to impact that.
Immediate impact on landlords
The Base Rate drop will have only marginally eased the pressure on landlords with variable mortgage rates. Some are hopeful that a wave of competitive deals from mortgage lenders may be incoming, but early signs are this is not the case.
So far, only a few mortgage lenders have altered their rates following the Base Rate cut. Ahead of the announcement, some lenders had already priced-in a Base Rate cut, which may account for the limited reaction after the vote.
Future predictions
Despite strong indications that no further movement on the Base Rate is expected, we cannot say with absolute certainty that this will be the last alteration we see this year.
Many are optimistic that this cut marks the start of an awaited downward trend in the coming months. However, the BoE governor’s comments indicate that those expecting to see incremental monthly cuts, at similar intervals to the 2022-2023 upward trend, may be disappointed.
Instead, the BoE are avoiding cutting too fast and furiously as that could worsen the already expected increase in inflation, where 2% remains their target.
Whatever happens, we will closely monitor interest rate activity over the next few months.