The Bank of England (BoE) has opted to keep its base rate at 5.25%, the seventh 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 continue to stay at its 16-year high.

At this week’s meeting, the Bank’s Monetary Policy Committee (MPC) voted by a majority of seven to two to maintain the base rate at 5.25%. Two members were in favour of a reduction by 0.25 percentage points, to 5%.

Despite yesterday’s inflation figure from the Office for National Statistics (ONS), which saw consumer price index (CPI) inflation fall back to the BoE’s 2% target for the first time in almost three years, the latest MPC report has warned that the 12-month CPI inflation rate is expected to rise slightly in the second half of this year, as declines in energy prices last year fall out of the annual comparison.

“Monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term in line with the MPC’s remit,” the MPC report said.

“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.”

Prior to the BoE’s recent moves to hold interest rates for seven times in a row, 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, but also led to large increases in mortgage payments.

Reacting to the latest BoE decision, head of mortgages and protection at Just Mortgages, Ben Allkins, said: “If there was ever a time for the BoE to finally pull its finger out, this was certainly it. Yet, in spite of inflation finally reaching the illusive 2% target, and recent GDP figures showing a flatlining economy, the MPC is still watching and waiting.

“While we can be encouraged by positive levels of buyer registrations and requests for valuations and appointments, a cut today would have been a real adrenaline shot to help carry us through a summer full of potential distractions – particularly with a general election. For now, we just have to hope swap rates react favourably to further stability in the base rate, giving lenders some wiggle room to reprice.”

Head of business development at Saffron for Intermediaries, Tony Hall, said that General Election will have played a “big role” in the BoE’s decision to hold interest rates.

“If anything, the stability of the base rate, driven by the Bank’s desire to ensure inflation is fully on a downward trend before making any changes, has reassured consumers and businesses that the mortgage market has fully recovered from the volatility of recent years,” Hall commented.

Despite the upcoming General Election, however, managing director of capital markets and finance at LiveMore, Simon Webb, said that last week's manifestos had offered “little stimulation to help older borrowers”.

“The Conservatives’ pledge to increase the threshold at which first-time buyers pay stamp duty to £425,000 from £300,000 offers no support for older buyers, effectively trapped in their homes," he commented. “If stamp duty was lifted for all buyers up to this threshold it would enable older borrowers to downsize, freeing up larger homes for younger borrowers.

“The Labour pledges similarly fail to address older borrowers’ needs despite the very real fact that we have an ageing population, with over 20 million people currently over 55.”

The next base rate decision by the Bank’s MPC is due to be announced on 1 August, four weeks to the day after the election.

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