The Bank of England (BoE) holding the base rate at 0.10% today has elicited a frenzy of commentary from market watchers – indeed, it came as something as a surprise.
The majority of commentators so far agree the decision is a good thing for the mortgage industry.
“Despite growing pressures to tackle rising inflation, it is encouraging to see today’s decision not to raise the base rate,” says Legal & General Mortgage Club director Kevin Roberts.
“Amidst unwinding government support, helping to keep borrowing costs to a minimum will support people across the UK by ensuring their mortgage and credit repayments remain at historic lows,” he says.
And Habito chief financial officer Martijn van der Heijden describes the BoE’s announcement a, “reprieve at the eleventh hour.”
He warns: “But it may not last long. The Monetary Policy Committee’s (MPC) next decision meeting is in December – an already expensive month for households… it’s still a question of ‘when’ not ‘if’ a rise comes.
“Should we see inflation rates continue to rise quickly, it increases the risk that the bank will have to act more aggressively in future votes to bring inflation under control, fast.”
LMS chief executive Nick Chadbourne, meanwhile, reflects on what this means concerning mortgage product rates already having been increased in the last few weeks. “Many expected the rate to be increased today and we have already witnessed several lenders raise their pricing in anticipation of that,” he says.
“Despite the rate being maintained, the precedent of lenders hiking product rates has been set and will likely continue for the rest of the year, and base rate won’t remain at 0.1% forever.”
Although the majority of mortgages are on fixed rates, Phoebus Software sales and marketing director Richard Pike says, “there are still many people on variable rate mortgages who should be preparing for the first interest rate rise in three years.
“A small rise to .25%, predicted by many, may not be huge, but it is likely to be the start of things to come. As the BoE tries to bring inflation in line with government targets it is inevitable that the MPC’s current stance will have to change. It’s just a matter of time.”
Stepping away from mortgages to take a broader economic view, Warwick Business School professor of economic policy and forecasting Ivan Petrella says the bank, “has made the right choice in resisting calls to raise interest rates this time.
“Inflation has been rising over the recent months and it is clearly heading up, but looking beyond the aggregate numbers shows that most of the recent rise in price reflect global supply shortages and bottlenecks.”
He continues: “This is a classic ‘cost-push’ inflation which will compress spending, in particular for the lower income earner that are more exposed to fuel and energy price increases. As price pressures are temporary and with the economic data already showing a slowdown in aggregate activity, not rising interest rate at this time is clearly a wise move by the BoE.”
HYCM chief currency analyst Giles Coghlan comments: “There is logic to this. Inflation might be rising, but the BoE is right not to consider an interest rates hike as a silver bullet to this problem.
“Labour data is crucial, and by deciding to postpone hiking rates, the MPC is likely waiting for more jobs data to become available following the end of the furlough scheme.”
And in a Tweet sent earlier today, former member of the MPC Andrew Sentance posted: “[The] press conference reveals very clearly that the current leadership team at the bank has little idea how to deal with the current inflation surge. The British public should be very worried about that.”
