The Bank of England left UK interest rates on hold at 5.25% for the sixth time in a row — but governor Andrew Bailey says he is “optimistic that things are moving in the right direction”.   

This leaves the mortgage industry hoping for a cut from the base rate’s 16-year high this summer rather than the autumn, as the central bank improved its inflation forecast.  

The Bank’s rate-setting Monetary Policy Committee voted 7-2 to hold rates, from 8-1 at its last meeting, as it battles to bring down inflation from 3.2% to its 2% target.  

The MPC minutes say inflation is expected to return “to around the 2% target” throughout the second quarter, but to increase slightly in the second half of the year to around 2.5%, “owing to the unwinding of energy-related base effects”.  

This is an improvement from its February forecast where it said that inflation would rise to around 2.75% by the end of 2024.  

However, the MPC is concerned about persistent inflation, due to high wage growth and a possible energy shock from increased unrest in the Middle East.  

Annual earnings growth slowed to 6% from 6.1%, according to the National Office for Statistics last month, but this was still stronger than the 5.8% pace analysts had expected.    

However, Bailey says: “We’ve had encouraging news on inflation and we think it will fall close to our 2% target in the next couple of months.  

“We need to see more evidence that inflation will stay low before we can cut interest rates. I’m optimistic that things are moving in the right direction.”  

SPF Private Clients chief executive Mark Harris says: “It is time for the rate-setters to be bold and start reducing rates, which will increase borrower confidence and give the housing market a welcome boost.  

“As far as mortgage pricing is concerned, what the BoE does with base rate is only part of the picture. If swap rates, which underpin the pricing of fixed-rate mortgages, edge further downwards, then lenders will introduce cheaper mortgage rates, increasing the choice for borrowers at more palatable pricing.   

“With Barclays and Lloyds already announcing reductions this week, hopefully it is only a matter of time before other lenders follow suit.”  

Saffron for Intermediaries head of business development Tony Hall adds: “Although the base rate has been held today, it’s been really positive to see the conversation shift from if it will fall to when.   

“The outlook for the mortgage market remains positive, with mortgage approvals rising for the sixth month in a row in March and the number of homes for sale in the first quarter also rising by 9% year-on-year.   

“Average rates have fallen from their summer 2023 peak and lenders are continuing to compete on price to attract buyers.”  

Jeremy Leaf, a north London estate agent and a former Rics residential chairman, says the market expects a rate cut “sooner rather than later”.  

Leaf adds: “The Bank had some tough choices to make — on the one hand it can see inflationary pressures easing with the headline figure now at its lowest for two years but on the other, wage growth remains stubbornly high.  

“As far as the housing market is concerned, we are finding borrowers increasingly concerned at the uptick in mortgage rates and the delay in what most people expect is a cut in base rate sooner or later.  

But AJ Bell director of personal finance Laura Suter says that the Bank’s cautious forecast pushes back the chances of a rate cut.  

Suter points out: “As more months pass there is an increasingly low chance of any sizeable cuts to interest rates in the UK this year.   

“The Bank is now modelling that rates will still be 5.2% in the second quarter of the year, up from the forecast of 5% it made in February this year.   

“Equally, rates are expected to still be at 4.5% in the second quarter of next year, compared to the 3.7% that was being forecast in February.   

Suter adds: “It feels almost absurd that at the start of the year markets were pricing in a cut to around 4.5% by the end of the year and that the first cut would be at today’s meeting. Now that timeline for the first rate cut has been pushed out to June, August or even September and there is a very low chance that we’ll see more than a few cuts in 2024.  

“The real impact of this delay will be felt by homeowners, who will have to endure higher rates for longer. It means more people will come off their cheap mortgage deals and onto higher interest rates before the base rate is cut.”   

Monetary Policy Committee rate vote:  

Hold: Andrew Bailey, Sarah Breeden, Ben Broadbent, Megan Greene, Jonathan Haskel, Catherine Mann and Huw Pill  

Cut: Swati Dhingra and Dave Ramsden voted to reduce Bank rate by 0.25% points to 5%