The first base rate cut in four years has been welcomed by the financial markets, but the split decision could mean a wait for more reductions.
The Bank of England’s (BoE’s) Monetary Policy Committee (MPC) voted to lower the base rate from 5.25% to 5%, but four members wanted to keep the rate at its higher level for the seventh time in a row.
Any more base rate cuts to come?
Karl Wilkinson, CEO at Access Financial Services, said the base rate decision was a “close call”, acknowledging the MPC’s concerns around inflation rising from its current level of 2% – the central bank’s target.
“However,” he added, “this is great news for the property market, which is in quite a different shape compared to last year”.
Wilkinson said: “Market sentiment and consumer confidence is up, and I expect we’ll see a lot more movement now in the second half of 2024.”
Sarwar Khawaja FRSA, chair of the executive board at Oxford Business College, said the MPC members who voted for a reduction deserved “a gold medal for giving Great Britain’s economy a boost”.
While modest, he said the move sent a “powerful message” that the BoE believed inflation was under control and it was ready to ease monetary policy.
“However, the narrow 5-4 vote suggests there’s still caution among policymakers about potential inflationary pressures,” Khawaja added.
Khawaja said a “rapid series of cuts” should not be expected as the BoE seemed keen not to reignite inflation.
He added: “While this cut is a positive sign, businesses and consumers should remain prepared for a gradual, rather than dramatic, shift in interest rates over the coming months.”
Agreeing, Adam Ruddle, chief investment officer at LV=, said the decision suggested the central bank felt inflation had been tamed and the UK’s economy had improved.
Even so, he said the headline inflation rate could rise in coming months, “and the bank will likely pause at the next meeting rather than begin a sequence of rate reductions”.
Max Shepherd, group economist at Yorkshire Building Society, added: “Despite voting to cut interest rates this time, Andrew Bailey has cautioned against cutting too quickly or by too much. This is likely to mean the Bank of England will pause interest rate cuts until at least November.
“The markets expect there to be one more interest cut this year.”
Mark Michaelides, chief commercial officer of Molo Finance, said it “remains to be seen whether this is a one-and-done cut for the next cycle or if there are further cuts to come in 2024”.
The MPC is due to meet again in September, November and December.
What it means for mortgage rates
Shepherd said because the base rate decision was widely expected, the fall in swap rates did not match the reduction, meaning there would be no major shifts in mortgage pricing.
He added: “Two-year swap rate has fallen 0.1% and five-year swap rate has fallen by 0.06% at the time of writing. This is, of course, good news for people looking for a mortgage – and at least it’s a step in the right direction – but won’t move the dial significantly.”
Paul Broadhead, head of mortgage and housing policy at the Building Societies Association, said: “Whilst a 0.25% cut in the rate, to 5%, will not have a significant impact on the overall cost of mortgage payments, it is likely to boost consumer confidence and lead to an increase in housing market activity.”
David Hollingworth, associate director at L&C Mortgages, said the decision to reduce the base rate sooner than some predicted could “add further weight to those [mortgage] reductions”.
Hollingworth added that lenders would “continue to fight hard to gain a share in a very competitive market”.
Shekina is the deputy editor at Mortgage Solutions and commercial editor at Mortgage Solutions and Specialist Lending Solutions. She has nearly eight years of experience in the B2B publishing market, having previously covered the hospitality, retail, pet, accounting and jewellery sectors.
Shekina has worked for Mortgage Solutions and Specialist Lending Solutions for almost five years. Here, she covers the market’s breaking news stories, engages with professionals in the sector, and oversees any commercially agreed content in partnership with mortgage-related companies.
This includes presenting webinars and hosting roundtable discussions on developing themes in the mortgage sector.
She is an NCTJ-trained journalist and was nominated for the Headline Money Awards Mortgage Journalist of the Year in 2021.
In her spare time, Shekina likes to read, travel, listen to music and socialise with friends.
She currently reports on current events in the mortgage market and liaises with financial clients to produce sponsored content.
Follow her on Twitter at @ShekinaMS
