The mortgage market reacted with acceptance to the Bank of England’s decision to hold base rate at 3.75% today.
The Bank’s Monetary Policy Committee (MPC) voted unanimously to keep base rate at its current level.
The decision to hold base rate came as most MPC members decided this was the best course to keep inflation on track.
CPI inflation is now 3.3%, with the Bank having a target of 2%.
The Bank said: “We have held Bank Rate at 3.75% – after cutting it six times since August 2024.
“War in the Middle East has disrupted the transportation and supply of energy, raising its price; this will push up households’ fuel and utility prices and companies’ costs. So, inflation will be higher than expected, at least in the short term – and the impact will be greater the longer the war and its effect on the global energy supply goes on.
“Higher energy costs could also slow down the economy as people and businesses will have less money to spend on other things – the MPC is assessing what this will mean for inflation.
“Monetary policy cannot affect global energy prices; but we will make sure that, as we adjust to them, we do so in a way that achieves the 2% inflation target sustainably.”
The next MPC decision will take place on 18 June.
Mortgage experts said the MPC’s decision to hold was a difficult one but not unexpected.
Ben Allen, managing director at The Right Mortgage & Protection Network, said: “The MPC’s decision to hold BBR may be slightly surprising given the jump in inflation last week, but at the same time, members have clearly asked themselves what would be achieved by an increase at this point.
“The answer is perhaps very little, apart from heaping slightly more pressure on mortgage borrowers at a time when the cost of living is rising. The last decision to hold gave the Committee breathing space, and with that time now passed, it is clear they still see enough uncertainty to avoid moving too soon. A stable ‘wait and see’ approach always felt like the most likely outcome.”
Jeremy Leaf, north London estate agent and former RICS residential chairman, said: “Although it is likely interest rates will go up again before they start coming back down, the hold today is a nod to the inflationary pressures which are building due to the impact of war in the Middle East. Certainly the Bank did not want to do anything which would compromise what little growth we have seen in the economy recently, which would clearly prove to be self-defeating.
“As far as the impact on the property market is concerned, the effects are likely to be fairly minimal although encouragingly we have noticed some mortgage costs starting to creep down again. This will certainly help to improve confidence which remains at a relatively low ebb.”
With the Middle East conflict fuelling UK inflation, markets are already pricing in a base rate rise of up to 4.25% this year, according to SONIA figures.
Nottingham Building Society chief savings officer Harriet Guevara said: “While today’s decision to hold the base rate at 3.75% was widely expected, the bigger story is how much the outlook has shifted.
“Just a few months ago, markets were pricing in further cuts. Now, with the conflict in the Middle East driving energy prices higher and inflation expectations rising, markets are pricing that rates are more likely to go up than down, potentially reaching 4.25% by the end of the year.”
