The Bank of England has announced that its base rate is to stay at 5.25%, the first time that interest rates have remained unchanged since December 2021.

A fifteenth increase in a row had been widely expected by financial experts but following yesterday’s surprise fall in inflation, the Bank’s Monetary Policy Committee (MPC) has voted to keep rates the same.

Interest rates had been gradually increasing since December 2021, when the Bank embarked on a run of 14 successive meetings that saw the base rate climb upwards from a historic low of 0.1%.

The latest move was a tight decision, however, after the MPC voted by a majority of five to four to maintain the base rate at 5.25%. Four members were in favour of another increase, of 0.25%, that would have taken interest rates to 5.5%.

It follows yesterday’s inflation announcement from the Office for National Statistics (ONS), which revealed a fall in the consumer prices index (CPI) inflation rate, to 6.7% for the 12 months to August, despite recent rising fuel prices. This latest figure is down from 6.8% in the year to July and continued a downward trend this year, after inflation was standing at a recent peak of 11.1% in October 2022.

CPI inflation falling to 6.7% in the year to August is 0.4 percentage points below the BoE’s expectations at the time of the MPC’s previous meeting.

A statement from the Bank said: “CPI inflation is expected to fall significantly further in the near term, reflecting lower annual energy inflation, despite the renewed upward pressure from oil prices, and further declines in food and core goods price inflation. Services price inflation, however, is projected to remain elevated in the near term, with some potential month-to-month volatility.”

The Bank also warned that monetary policy will need to be “sufficiently restrictive for sufficiently long” to return inflation to the Committee’s 2% target sustainably in the medium-term.

“Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures,” the BoE added.

Commenting on the implications for the mortgage market, director of Legal & General Mortgage Club, Clare Beardmore, said the BoE’s decision to put off a further rate rise would provide some “relief” for homebuyers, and those who need to remortgage.

“Inflation dropped to 6.7% in August, and the Bank clearly believes that existing interest rate rises are already having a positive impact,” Beardmore said.

“Over the past week, we have already seen reductions in interest rates on some mortgages. However, pricing remains higher than before, so it comes as no surprise that a growing number of buyers, particularly first-time buyers, are looking to the Bank of Family for support.”

CEO of Market Financial Solutions, Paresh Raja, said the move was a “welcome surprise” after lenders had been expecting and even pricing in another 0.25% hike.

“This decision will inject a little more spark into the market,” Raja said. “Even with the expected hike, rates had stabilised in recent weeks, with the lending industry increasingly confident that we’ve reached the top of the interest rate hill that has been climbed since December 2021.

“Still, there will be a natural period of adjustment in the months ahead. Looking at the bigger picture, a base rate of 5.25% is not abnormal, but borrowers had grown accustomed to a period of record-low rates. As we are now less likely to see any notable swings in the base rate, house prices will likely settle as buyers can establish what their real spending power is.”

Looking ahead to the rest of the year, CEO at Loan.co.uk, Paul McGerrigan, added: “After 14 rate hikes, the MPC has finally paused, reflecting no doubt, on the recent 0.7% dip in core inflation and the cries for a breather to assess the impact of their actions.

“Global tensions, like the Ukraine conflict and reduced oil production, remain economic threats. Current SVR and tracker rate holders are relieved, and we hope for decreasing interest rates by year-end, potentially boosting the property market and staving off recession.”

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