The Bank of England has voted to hold the base rate at its 16-year high of 5.25% due to concerns over service prices and wage growth.   

The news was disappointing for the property industry, although some economists still say the first rate cut from the central bank could come as early as August, bucking the November consensus.  

The central bank’s rate-setting Monetary Policy Committee voted 7 to 2 to hold the rate at the same level it has been set at since last August. Its last rate cut came in March 2020.  

The hold comes despite inflation falling to 2% in the year to May from 2.3% the month before.  

The MPC minutes say the “indicators of short-term inflation expectations continue to moderate, particularly for households”, but adds that “inflation 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”.  

It says that the base rate “will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term”, adding that it will pay close attention to the tightness of labour market conditions, wage growth and services price inflation.  

The committee adds that wage growth at 6% in May continues “to exceed model-based estimates” and indicates that domestic demand was “stronger than had been expected”.  

The annual rate of services inflation eased to 5.7% from 5.9% in the year to May, but is above the MPC projections of 5.3% it made two months ago.  

Several economists note that the general election on 4 July had made the MPC wary of cutting the base rate in the middle of a campaign.  

But the committee says that “the timing of the general election on 4 July was not relevant to its decision at this meeting, which would as usual be made on the basis of what was judged necessary to achieve the 2% inflation target sustainably in the medium term”.  

SPF Private Clients chief executive Mark Harris says: “It is no surprise that base rate has been held for another month, even though with inflation hitting the 2% target it is time for the Bank of England to be bold and start reducing rates.  

“With yet another rate hold, borrowers will find not much changes in the short term. Those on fixed and variable rates alike won’t see their monthly mortgage payments change, so those sitting on their lender’s standard variable rate in the hope that rates will start falling soon may wish to seek advice and consider opting for a base-rate tracker or fixed rate to reduce their mortgage payments.”  

John Charcol mortgage technical manager Nicholas Mendes adds: “While today’s decision to hold rates steady may be difficult to accept, recent lender movements suggest we are approaching the end of the era of higher-priced fixed rates.   

“Borrowers though will need to remain patient a bit longer before we start to see high street lenders battling amongst themselves at sub-4% fixes.”  

Deutsche Bank chief UK Economist Sanjay Raja points out: “Despite the recent punchy wage and services inflation prints, today’s decision was more finely balanced than we expected.   

“While Bank rate stayed put at 5.25%, multiple MPC members downplayed the upside surprises in the price and wage data, instead putting more stock in forward-looking survey data. Put differently, the MPC has softened its focus on the hard price data, in favour of a broader macroeconomic outlook.  

“To be sure, the MPC has left an August rate cut on the table. We continue to think that the MPC will start dialling down restrictive policy from summer and deliver two rate cuts this year.”  

EY UK Chief Economist Peter Arnold agrees: “By reporting that, for some members, June’s decision was ‘finely balanced’, the MPC sent a clear signal that August’s meeting is live, and that a rate cut is on the cards if data published over the next six weeks is supportive. 

“This suggests some committee members are increasingly placing less weight on backward-looking measures of inflation persistence – such as services inflation – and more emphasis on how inflation is likely to evolve in the future.  

“In particular, these members seem to see a much smaller risk of inflation expectations staying elevated now that headline inflation has returned to the BoE’s target.” 

But Building Societies Association head of mortgage and housing policy Paul Broadhead adds: “With inflation dropping to almost the 2% target, many mortgage borrowers might have been hoping for a cut in the Bank rate today.   

“The decision to keep rates at 5.25% will be very disappointing news for them, as well as those looking to buy their first home. 

“With two of the nine members of the MPC voting for a cut today, it is clear that some are holding out for more overwhelming evidence that inflation can consistently stay at or close to the target.   

“We still anticipate the bank Rate will reduce this year, however this is happening much later and slower than we had anticipated earlier in the year.”