The move is the latest in a series of four consecutive holds, with the previous ones happening in April, March and February. The base rate has not changed since December, when the MPC voted for a cut from 4% to 3.75%, where it has since remained.
This month’s hold was voted for by a majority of 7:2, with two MPC members voting to increase the base rate to 4%. The minutes of the meeting noted that, due to the conflict in Iran, “the impact of the energy shock on the UK economy remains uncertain” and the MPC is pursuing an approach to “sustainably” reach the inflation target of 2%.
Base rate hold is a ‘relief’
The decision comes on the back of positive news from the Office for National Statistics (ONS) yesterday that found that inflation for May was unchanged from April, with David Hollingworth, associate director at L&C Mortgages, predicting the inflation news “should help to cement the majority view that the Bank of England base rate will be held”.
Prior to the outbreak of the Iran war, the base rate had been predicted to undergo a handful of cuts this year. Despite this month’s hold decision, the overall picture remains one of uncertainty.
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Ben Nichols, CEO of RAW Capital Partners, said: “Global events continue to create a lot of uncertainty where inflation is concerned, which had led some to predict a hike was coming today. So, relief is probably the best word to describe how most borrowers and brokers will be feeling.
“With the base rate held at 3.75%, the market has something it badly needed: a little more stability. In the early days of the Middle East conflict, there was a huge amount of swap rate volatility, and many lenders were quick to reprice. However, with oil prices easing following news of a US-Iran deal, the outlook is already looking clearer than it did just a few weeks ago. That should help settle market expectations and, most importantly, give investors greater confidence to move ahead with their plans.
“Nevertheless, this remains a complex market and the politics remain uncertain, so neither lenders nor brokers can afford to celebrate today’s decision with any zeal. Demand is still out there, but confidence remains sensitive to any shift in rates or inflation. While a hold gives the market some breathing space, the priority now is providing the clarity, consistency and flexibility brokers need and looking for ways to solve the challenges they are facing on the ground.”
