Bank of England ‘following the US on base rate trajectory’

The Bank of England is likely following the US market by being cautious about cutting the base rate, property and financial professionals say.

The Bank chose to hold the base rate at 5.25% yesterday, one day after the US Federal Reserve held its key interest rate between 5.25% and 5.5%.

Nicholas Hyett, investment manager at Wealth Club, said: We suspect that central banks around the world are waiting on the US Federal Reserve to set the pace.

“Once the Fed starts to cut, currency movements will likely force others to follow suit. As in so many other areas of public life, where the US leads, the UK will follow.”

Adam Oldfield, chief revenue officer at Phoebus Software, said: “Like the UK, the US market is also anticipating a rate cut later in the year. But for now, caution seems to be the way to play it.

“A lot of lenders are questioning the sagacity of that, with the worry being that when a cut does come, it will be too little too late.”

The BoE’s Monetary Policy Committee voted 8-1 to keep borrowing costs at their 16-year high of 5.25% on Thursday, with two members who had previously called for higher rates changing their stance.

Adrian Anderson, director of property finance firms, Anderson Harris, said: “The start of 2024 then saw a real disconnect between the Bank of England’s hawkish base rate views and the doveish market sentiment driving cheaper fixed mortgage rates, welcome news for many.

“As spring begins, we are seeing greater alignment between the Bank of England and the markets, reflected in today’s fixed rate mortgage pricing which has crept higher over the past month.”

Nick Leeming, chairman of Jackson-Stops, said: “Today’s decision to hold rates was widely expected but could suggest we are finally reaching the light at the end of the tunnel. Optimistic predictions are hinting that the Bank of England may be on course to begin bringing the base rate down as early as May.

“The reason for this greater positivity is that the battle against inflation is being won quicker than expected, but putting the UK on a more stable economic footing remains a marathon not a sprint. Given the close link between interest rates and monthly mortgage payments, current rates have challenged affordability, particularly at the lower end of the market. But holding rates offers a steady foundation that should allow the property market to build upon the cautious momentum we’ve witnessed in recent months.”

One commentator expects the base rate to be as low as 4.0% by the end of the year.

Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “With inflation dipping to 3.4%, speculation is growing as to when the Bank of England will start cutting interest rates. It is time for the rate setters to be bold and start reducing rates at the next meeting, increasing borrower confidence and giving the housing market a welcome boost.

“The evidence suggests we are edging closer to a rate cut. At the last meeting, six members of the Monetary Policy Committee voted for no change in rates, two wanted an increase and one a rate reduction. This time around, eight voted to hold rates, with one voting for a quarter-point reduction.

“We expect base rate to be close to 4% by the end of the year, assuming inflation continues to move towards its 2% target. This would come as welcome news for borrowers struggling with affordability.”

“As far as mortgage pricing is concerned, what the Bank of England does with base rate is only part of the picture. If Swap rates, which underpin the pricing of fixed-rate mortgages, edge further downwards, then lenders will introduce cheaper mortgage rates, increasing the choice for borrowers at more palatable pricing. Lenders are certainly keen to lend and want to do more business after a disappointing 2023.”