The Bank of England (BoE) has opted to keep its base rate at 5.25%, the fifth time in a row the central bank has held interest rates.

While economic forecasters are still expecting interest rates to fall later this year, the current base rate, which was set last August, will remain at its highest level for nearly 16 years.

At its latest meeting, the Bank’s Monetary Policy Committee (MPC) voted by a majority of eight to one to maintain the base rate at 5.25%. One member was instead in favour of a reduction by 0.25 percentage points, to 5%.

The UK’s annual rate of inflation, which peaked in October 2022 at 11.1%, has steadily fallen since and latest figures, published yesterday by the Office for National Statistics (ONS), indicated that inflation now stands at 3.4% – its lowest level since September 2021.

Monetary policy will need to remain “restrictive for sufficiently long” to return inflation to the BoE’s 2% target sustainably in the medium-term, the Bank said in its latest statement.

“The Committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates,” it added.

Prior to the BoE’s recent moves to hold interest rates for five times running, the central bank had raised its base rate at 14 successive MPC meetings since December 2021, a cycle that has helped to slow the rate of inflation, and led to higher savings rates but also large increases in mortgage payments.

Reacting to the Bank’s latest move, CEO of Spicerhaart and Just Mortgages, John Phillips, said that is “a real shame” the MPC didn’t seize the opportunity to make the first “long-awaited cut” to the base rate.

“That’s especially true given yesterday’s news and the positive trajectory of inflation,” Phillips added. “While the central bank does have to exercise caution to reach its 2% target, it’s critical it doesn’t stifle the economy by making a decision too late.

“A base rate cut today would have added some fantastic momentum to the confidence we have seen return back to the market and helped in some way to answer the affordability challenges many are still experiencing. Nonetheless, a fifth consecutive hold brings stability and along with yesterday’s inflation news, may reflect positively on swap rates – giving lenders the opportunity to reprice rates, even if only marginally.”

CEO of Market Financial Solutions, Paresh Raja, added that while yesterday’s inflation data “didn’t fall enough to move the needle for the BoE”, the property market is already benefitting from the stability that a static base rate provides.

“Buyers are adapting to the higher rate environment, and lenders are being bolder in the rates and products they are offering,” Raja said. “This is important. Even when the Bank does cut the base rate, we have to be realistic in accepting that rates will not come down as quickly as they went up, so the market has to adjust to a different interest rate environment.

“The early signs are that this is happening, and while inflationary pressures and election uncertainty remain as bumps in the road ahead, there is undoubtedly far greater confidence and optimism permeating through the property market.”

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