Prior to the outbreak of the ongoing unrest in the Middle East, the base rate had been on a slow and steady downward trajectory, with a handful of cuts expected over the year.
However, the base rate was held at the MPC’s last meeting in March, with the committee citing the US-Iran conflict and wider unrest as the reason for its unanimous vote to hold.
Given the geopolitical backdrop and in light of March’s inflation figures showing a rise, today’s hold was voted for by a majority of 8:1, with one member voting to increase the base rate to 4%. The minutes of the meeting cited rising inflation but noted that tightened financial conditions since the outbreak of the conflict would support the reduction of inflation over time.
Mortgage market breathes ‘a small sigh of relief’
Mortgage rates experienced a flurry of changes and withdrawals when the conflict first broke out, with Moneyfacts reporting that the average mortgage shelf life fell to just eight days in March – a record low – as the effects of the turmoil fed through.
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However, earlier this month, Moneyfacts stated that the slowing pace of mortgage rate changes meant they may have reached their zenith.
Ben Nichols, managing director of RAW Capital Partners, said: “There was some talk of a rate hike ahead of today’s decision, so the market will be breathing a small sigh of relief that it has held steady for now. The conflict in the Middle East has clearly added some upward pressure to the inflation outlook, particularly around energy costs, but growth has to remain part of the conversation too. On that front, after a challenging few years, it’s encouraging to see the bank avoid adding further pressure to the economy.
“For the property market, it also gives brokers and borrowers a bit more certainty in the short term. We’ve already seen some lenders start to reduce rates after initially pricing in more risk and, hopefully, today’s decision supports that trend and gives brokers and borrowers more confidence to move ahead with their plans.”
He continued: “That said, the speed at which rates have risen since the start of the conflict has naturally affected sentiment, so lenders need to keep providing clarity and flexibility, while listening closely to the challenges brokers are seeing on the ground.”
