The Monetary Policy Committee (MPC) voted 7–2 to keep the rate at this record-low level, which dates to March 2020, when the rate was lowered from 0.25%.
Minutes from its meeting describe 12-month CPI inflation falling from 3.2% in August to 3.1% in September, and an assumption of a rise to “just under” 4% in October, then 4.5% in November, followed by a peak of 5% in April 2022.
The MPC believes this inflation will “dissipate over time, as supply disruption eases, global demand rebalances, and energy prices stop rising.”
It adds that it is likely to increase the bank rate “over coming months” in an attempt to get inflation back to its 2% target within two years’ time.
Glenhawk chief executive Guy Harrington says: “The MPC seems undeterred by the fact that the past 18 months have disproportionately benefitted existing homeowners and this rate decision will continue to make it harder for first-time buyers (FTBs) to get onto the property ladder.
“Affordability will now be stretched to an unreasonable point, with inflationary pressure squeezing more people out of the market and delaying first home purchases, with no house price cliff edge in sight.”
However, North London estate agent and former Rics residential chairman Jeremy Leaf says: “Activity and price growth has been slowing since government support schemes started winding down.
“An interest rate rise would compromise confidence for some, particularly FTBs on tight budgets concerned about the future direction of travel of rates. As the housing market is built on confidence, a rate rise, and perhaps two or three more to follow, would inevitably have an impact on activity.”
And Investec’s Hayley Scott adds: “This feels like the right decision. The economy is still in recovery mode, and GDP is yet to regain all the lost ground from Covid.
“Importantly, the full impact of the end of furlough is yet to be seen and, despite the government’s insistence, the reintroduction of Covid restrictions can’t be ruled out.
“However, if the labour market holds up and the recovery does not stall, a first rate rise in the coming months is almost inevitable and will be increasingly necessary. The pressure on developers from build cost and wage inflation is growing all the time, whilst there are few winners from rampant house price inflation.”
