During the last month of the summer, rent and mortgage payments grew by 1.1% compared to 10.8% a year ago and 12.16% at their peak in June 2023, analysis from Barclays reveals.

Growth is at its slowest pace since March 2023, when rent and mortgage payments rose by 0.17%.

Confidence in household finances rises

The bank’s latest Property Insights report found that consumers were feeling more confident about their household finances, but some concerns about rent and affordability remained.

Renters experienced greater constraints on available homes in August as the influx of students back into the market added to competition for rental accommodation.

As housing costs continue to rise, households have been able to make savings on energy bills. Warmer weather coupled with the Ofgem energy price cap resulted in the fourth consecutive month of falling utilities spending, dropping by 11.4% year-on-year.

But bills are set to rise when Ofgem increases the annual energy price cap by 10% in October.

A reduction in energy prices and a slowdown in the pace of inflation, now at 2.2%, has led to 70% of consumers saying they are confident in their household finances, up from 65% in July.

Confidence in the housing market has also risen, increasing from 25% to 29% between April and August. However, with 78% of mortgage holders reporting they have a fixed rate deal, only a small proportion of consumers have felt the benefits of recent interest rate reductions.

In August, the Bank of England reduced the base rate from 5.25% to 5%.

Consequently, only a marginal decrease in those not confident in their ability to afford rental or mortgage payments was recorded, dropping from 16% to 15% month-on-month.

Renters feel the squeeze

For renters, competition for properties is an ongoing struggle. For the fourth month in a row, 20% reported getting less value for their money due to high demand.

Among the 18-34-year-old group, this rises to 26%. Young renters are also facing additional pressures as students enter the market for the new academic term. More than one in six say the influx of students is causing too much competition for properties.

Given the extra squeeze on housing supply, only 14% of 18-34-year-old homeowners say they are considering selling their home, with many opting to retrofit instead. Some 28% say they are making improvements to their home to make it more energy efficient.

Mark Arnold, head of mortgages and savings at Barclays, said: “In the year to date, we’ve seen encouraging signs that spending on rent and mortgages is decelerating on the whole, but unsurprisingly it isn’t a linear descent and we could see some volatility over the coming months, despite the recent interest rate cut.

“Many people think that interest rates are what really determine the mortgage market – and whilst that’s true to some extent, for me, the biggest driver is confidence. If you’re going to make the biggest purchase of your life, you need to be confident that the economy is stable, inflation is under control, and you know what you’re going to pay. That stability and confidence will determine how people spend, even for renters.”

GDP measures the value of goods and services produced in the UK. It estimates the size of – and growth in – the economy.

UK GDP is estimated to have increased by 0.6% between April and June 2024, following growth of 0.7% in the previous quarter (January to March).

According to the ONS, compared with the same quarter a year ago, GDP is estimated to have increased 0.9% in Q2 2024.

However, GDP is estimated to have shown no growth in June 2024, following unrevised growth of 0.4% in May 2024 and no growth in April 2024.

For Q2, growth was attributed to the 0.8% rise in services output – for the second consecutive quarter – with early estimates suggesting 14 out of 20 of the sub-sectors grew, which offset falls in both the production and construction sectors.

However, on a month-by-month snapshot, services output fell by 0.1% in June.

Production output grew by 0.8% in June, following growth of 0.3% in May, but fell by 0.1% in the three months to June.

Meanwhile, construction output grew by 0.5% in June, following growth of 1.7% in May, but fell by 0.1% in the three months to June.

Economic confidence and base rate speculation

Nicholas Hyett, investment manager at Wealth Club, said: “The weakness in the all-important services sector reflects a slowdown in the retail sector as well as strikes by junior doctors, though the professional services sector remains resilient and is now in its fifth consecutive month of growth.

“Positive signs in the manufacturing and construction sectors bode well for the future, given the longer lead times in these sectors. Increased activity implies rising economic confidence with the potential to sustain longer-term economic growth.”

Hyett added: “However, the crucial number from a political point of view is the quarterly growth figure – and at 0.6%, it’s pretty healthy. With potential for interest rate cuts to stimulate activity in the second half of the year, the recession of late 2023 seems a long time ago.”

Danni Hewson, AJ Bell’s head of financial analysis, said the quarterly growth is higher than that being enjoyed in the rest of the G7 with the exception of the US, although Germany and Japan are yet to update their figures.

“Household consumption was up as people have got a few more pennies in their pockets thanks to falling inflation and strong wage growth. That extra cash sloshing around has provided the fuel for the kind of growth that’s been lacking for the past couple of years when the economy seemed to flatline following its post-Covid recovery.”

Hewson added: “The interest rate cut from the Bank of England [that] came in August has already seen competition in the mortgage market hotting up and confidence building. But there are no easy answers or quick solutions to ensure that growth maintains its current trajectory and doesn’t get bogged back down in the same old sticky problems.”

Meanwhile, Ashley Webb, UK economist at Capital Economics, said today’s release doesn’t change their view that the bank will keep interest rates on hold at 5% at the next policy meeting in September.

“But with the timely PMI data suggesting GDP growth slowed at the beginning of Q3, at the margin this lends a bit more support to our view that interest rates will be cut twice more this year, to 4.5%,” Webb added.

This article was first published on Mortgage Solutions‘ sister site, YourMoney.com. Read: UK economy expands 0.6% in Q2

Today, the Monetary Policy Committee (MPC) will announce its decision on the Bank of England’s rate, with many commentators believing it’s too tight to call if it will drop.

Households will be waiting to hear what impact the vote will have on their mortgage rates, which have started to creep down further recently. Indeed, the average five-year fix has fallen below 4% for the first time since April.

On the other hand, savers have reaped the rewards from the increase in interest rates, but how long will that continue?

We take a look at the current rates and how the 12 months of 5.25% rates have impacted the mortgage and savings rates on offer, with data and commentary from finance expert Rachel Springall from Moneyfacts.

Mortgages

Last August, the average two-year fixed rate stood at 6.85%, while the five-year equivalent was 6.37%.

Now, those rates are 5.77% and 5.38% respectively, which have both dipped since July, when they were 5.53% for a two-year deal and 6.01% for a five-year deal.

For a longer-term deal, a 10-year deal is 5.93% on average, not far from the 5.89% rate in August 2023.

However, when you look at the deals in December 2021, the contrast is stark, as the average 10-year rate stood at 2.97% and two- and five-year rates were 2.34% and 2.64% respectively.

Elsewhere, standard variable rates (SVRs) have followed the opposite direction of traffic since the base rate was held at 5.25%.

Since August 2023, the rates have crawled up to 8.16% from a 7.85% rate, but this is small in comparison to the leap in August 2022, when they were 5.17% on average.

‘Borrowers require a lot of patience’

Rachel Springall believes mortgage holders will require a “lot of patience” as they wait for their fixed deal to expire before they can grab a more attractive rate.

Springall said: “However, despite the latest falls, borrowers may want to see a bigger injection of rate competition, particularly as rates are higher than they were six months ago.

“Those desperate to secure a new deal for peace of mind could do so a few months before they come off their existing deal, as some lenders will let borrowers do this from three to six months in advance.

“Borrowers coming off a deal this year must acknowledge that they will need to set aside more of their income to cover higher repayments.”

Springall also recommended sticking with a fixed rate deal due to the SVR holding little value since the base rate began to rise in December 2021.

Paying the average 8.16% SVR could cost borrowers an extra £380 per month on a £250,000 home compared to a typical two-year fix on the market.

She added: “First-time buyers trying to get their foot onto the property ladder will find some competitive deals out there, but their homeownership dreams weigh on whether they can find an affordable property, particularly if they don’t have the Bank of Mum and Dad to make their dream a reality.”

Savings

In the savings market, the average easy-access account was 2.81% in August 2023, while the easy-access cash ISA was 2.86% on average.

The savings market has not fluctuated as much as the mortgage market in the year since the base rate has been held at 5.25%.

In the last month particularly, there has been little change across the board.

For August 2024, the average easy-access and easy-access cash ISA accounts come to 3.15% and 3.36% respectively.

A notice ISA is now 4.22%, up by 0.57% on last August’s rate, whereas its non-ISA equivalent has gone up from 3.9% to 4.29%.

Looking back to before the base rate hikes, the average savings rate for easy-access and easy-access ISAs were much lower and both below 0.3%. Now, there are plenty of challenger banks offering customers much more competitive prices than their major bank rivals.

Check out the challenger bank rates

Springall has urged savers to stay alert to the best deals offered by challenger banks if they haven’t done so in the last few months.

She said: “The average rate paid across the biggest high street banks is 2.01%, which is less than the current market average easy-access rate across all savings providers. The last time the base rate rose was in August 2023, by 0.25%; six months later, the average easy-access rate rose to 3.17%, but again, the average rate paid across the biggest high street banks was less, at 2.04%.

“There are expectations for the base rate to fall before the year is over, so those savers who want a guaranteed return would be wise to consider either a fixed rate bond or ISA for a guaranteed return.

“It is also imperative that savers with bigger pots keep an eye on whether they are due to breach their Personal Savings Allowance [PSA], and if they haven’t already, consider utilising their ISA allowance to protect their money from tax.”

The finance expert also warned for savers to brace themselves for a dip in attractive savings rates once the base rate eventually lowers.

She added: “Once a base rate cut happens, it can have a big impact on the variable rate market in a short time frame, but can also trigger providers to adjust fixed rates as a consequence.”

This article was first published on Mortgage Solutions‘ sister site, YourMoney.com. Read: A year of the 5.25% base rate: What to do next with your mortgage and savings

Even though mortgage rates have already been coming down in recent weeks, some borrowers might prefer to wait for the Bank of England’s movement, believing this will encourage more reductions.

So, this week, Mortgage Solutions is asking: Have any clients explicitly said they are waiting for mortgage rates to fall? 

Ellis Shepherd, senior mortgage and protection adviser at All About Mortgages 

We currently have a real mixed bag. I have some clients, primarily first-time buyers, who are desperate to get going and, while they know rates were lower over the years, they haven’t ever experienced it.

The priority seems to be: “Can we just have our own space and pay less than the equivalent for rent, so we feel like we are getting some sort of value?” My answer is yes, depending on your affordability.

Other clients, primarily homemovers, are holding out for rates to fall. One couple particularly springs to mind, both on good incomes, can buy or borrow above the “norm”, have offered on many properties over the past four months but who caveat this with “we do not wish to apply for a mortgage at this time, we have an application in principle to confirm we can proceed, but we are hoping for rates to reduce”. This naturally hasn’t gone down too well over the months, but they now have had a successful offer.

Their case is extreme, as they are happy to sell their property and move out to rent if needed, so they are not forced into buying something with a rate they may regret in the future. But for the right property, they would be happy to move now and swallow the increases.

They are on a variable rate currently, which means they have the flexibility to sell and move without an early repayment charge (ERC), but also that they spend more each month. On the flip side, their new mortgage will probably cost more than this, so it’s getting them used to paying slightly more. 

Naturally, I’ve been asked when rates might fall.

“If I had a penny…” is my usual response, but really, it’s down to my clients’ circumstances. Sure, we would all love to wait for rates to come down, but is that practical? Can you afford to wait on a variable? If you take a punt on a two-year deal and rates are worse in two years, how will that impact your future?

Just some of the questions an experienced adviser should be querying when getting to know their clients.

Faye Richards, director and mortgage consultant at Faye Richards Private Finance 

As soon as the election was announced, there was a noticeable drop in new enquiries. I found buyers became very hesitant and wanted to wait and see how the election may impact the market and interest rates. Some buyers were even hopeful of new buying incentives being offered such as further reduced stamp duty.

Since the election, things have picked back up, with first-time buyers and homemovers wanting to get on with things. Although, I still feel many clients are waiting to see what happens with the market and are perhaps just tentatively looking for properties. 

Many first-time buyers being new to the market don’t know any difference and accept the current rates for what they are. Overall, most buyers and remortgagors are taking two-year fixed deals with the optimism rates will drop – even slightly – within this time period.

Tracker mortgages are being taken by the most daring and tend to be experienced buyers and owners who feel they have an insight into the market and/or have done a lot of research.

Many clients have asked the million-dollar question of when interest rates will drop. The general consensus is yes, they may come down, but it will be slow and gradual.

To sit and wait on the standard variable rate (SVR) is not something many of my clients have opted for. Instead, they prefer to have certainty of payments and have given up on waiting for a rate drop, instead choosing a two-year deal, hoping for better times ahead. 

The remortgage process has changed and become a lot more onerous for brokers, with multiple conversations and changes to a mortgage product throughout the client’s six-month remortgage window.

I have clients tracking rates themselves, sometimes sending through updates and asking that we update their application. Rate savings are small but every little helps. We always review options up until the final possible stage, even sometimes cancelling off a new lender remortgage offer in favour of a last-minute change made by the client’s existing lender rate switch range. 

Jonathan Clark, mortgage and protection adviser at Fairstone Wealth Management 

The prospect of interest rates reducing – even slightly – in the near future makes things challenging for lenders, brokers and, most importantly, clients.

Naturally, everyone borrowing money wants to do so at the best – i.e., lowest possible – rate, and so a typical response is to “hang on” until the last possible minute and see if the terms you’ve been offered can be improved upon. For purchasers, this means regularly reviewing their product to take advantage of any reductions. 

So far, I’ve seen no evidence of them actively delaying or postponing their purchase. Of course, some may be waiting for rates to drop before they even start looking for a property, but when they invariably ask for my perspective on this, I tell them that history tells us that when rates cool, prices are inclined to rise – so this may not pay dividends. 

Those with existing mortgages are perhaps more sensitive to current rates, as many will be coming off rates of around 2% and seeing them at least double.

Like most brokers, we would contact our existing customers around six months prior to their current rate expiring and encourage them to book a new deal soon, as this guards against possible future increases even if this is looking increasingly unlikely, while still offering them the option to jump across to any better or lower rates before their switch date. 

A few of my clients have opted for two-year fixed rates, some even for tracker mortgages – preferably one with no tie-ins – but the majority still opt for five-year fixed rates of around 4.5%.

Some of us – me included – remember rates of 15% in the late 1980s, so 4.5% really doesn’t look that bad in comparison. 

Public perception appears to be that rates will drop significantly and quickly, but most in the industry feel it is more likely that this will be a more gradual process. 

Following cuts of at least 0.6%, pricing now starts from 5.39%. A 1% arrangement fee applies across tiers zero to five.

Borrowers can access two- and five-year fixed rate deals at 75% loan to value (LTV), and these are on offer for a limited period.

Flurry of price cuts

A flurry of lenders have introduced lower mortgage pricing in the weeks that followed June’s Monetary Policy Committee (MPC) meeting, where rate-setters voted to hold the base rate at 5.25%. It is widely expected that the base rate will be cut at the next meeting on 1 August. The base rate has remained at 5.25% for seven months in a row.

The average two-year fixed mortgage rate is currently 5.95%, while five-year fixes rest at 5.53%, according to Moneyfacts.

Adrian Moloney (pictured), group intermediary director at OSB Group, said: “This limited-edition range is great news for brokers and borrowers alike, as not only does it offer our lowest rates as well as low fees, it also includes options for those with impaired credit, which ticks the box for many.”

Continued rate reductions

Last month, the lender cut rates across its buy-to-let (BTL) range. Pricing now starts from 4.49%.

Precise said the changes would offer a “more competitive range” and increase the borrowing power of landlords.

The lender reintroduced its Tier 1 products at 70% and 75% LTV with reduced paperwork requirements for eligible borrowers, including options for landlords with houses in multiple occupation (HMOs), multi-unit freehold blocks (MUFBs) and borrowing through limited companies.

It also widened its Tier 2 and 3 product range up to 80% LTV with the addition of two- and five-year fixed options.

Quarterly, however, some regions have lost momentum, with Yorkshire and the Humber losing its top spot in the table and falling to fifth place with an average yield of 7.6%, down from 8.5% last quarter.

Market leader

Top of Fleet’s yield table is the North East, where landlords have seen yields rise by 1.6 percentage points over the last 12 months, from 8.5% to 10.1%.

Taking the second and third places are the North West and Wales with 8.4% and 8.3% yields, a rise of 0.9 and 1.3 percentage points respectively.

Ranking in last place is Greater London, where landlords saw yields rise by 0.8 percentage points to 6.1%.

Overall, average rental returns rose by percentage point from 6.6% to 7.6% between Q2 2023 and Q2 this year.

There remains an ongoing North/South divide, with regions in the North topping the table.

However, Greater London, the South East, East Anglia, and the South West have not just seen average yields increase yearly, but also quarter-on-quarter.

Landlords in Greater London, however, are still receiving the highest average monthly rent at £2,024, followed by East Anglia at £1,594. Tenants living in the North East are typically charged the most affordable rents, at £768 on average.

Rising yields are no surprise, said the lender, when tenant demand continues to outstrip the supply of available properties.

Anticipated rate cut

Fleet said it anticipates movements in the bank base rate and swap rates to determine short-term product pricing, with the expectation that the Bank of England would cut rates in August or September, and swaps reflecting the market belief that rates would continue to fall.

Steve Cox (pictured), chief commercial officer at Fleet, said: “The requirements for an ongoing strong yield are clearly not going away, particularly in a higher-interest-rate environment in which many refinancing landlord borrowers are having to pay far more for their monthly mortgages than they did up to five years ago.

“When it comes to mortgage pricing, it showed a clearly increase in quarter two. However, with inflation now down to target, once we have the general election out of the way, we would anticipate a base rate cut in either August or September, and swap rates will move to reflect further cuts in the not-so-near future.”

Economists have echoed Fleet’s sentiment, predicting a rate cut will arrive in August, reducing the base rate from its current position of 5.25%.

Fleet’s average loan size decreased on the previous quarter, down from £196k to £171k. However, the average rental cover at loan origination continued to increase from 175% to 178%.

Property purchase business in Q2 2024 increased, with 42% from landlords who want to buy a property, compared to the longer-term quarterly trend of 30%.

Some 80% of all Q2 2024 applications were for limited companies, while 20% were made by private investors.

The bank is set to cut rates across its product transfers, deals for existing borrowers looking to increase their mortgage loans, new customers, remortgages and buy-to-let investors.

The majority of rate cuts are available up to 90% loan to value (LTV) with the exception of buy-to-let mortgages.

Rate cuts will be applied to the bank’s five-year fixed fee saver deal for switching customers up to 95% LTV.

The rate cuts, which have yet to be announced, will be available from tomorrow.

A HSBC spokesperson said: “We are firmly focused on helping customers onto or up the property ladder. There are a number of factors that are taken into account when setting mortgage rates, and following a review, we are reducing over 300 mortgage rates across our residential and buy-to-let mortgage ranges, from tomorrow.”

Earlier this week, Barclays cut rates for selected existing residential borrowers and across its green mortgage range.

The MPC chose to maintain the base rate at its current level of 5.25% for the seventh month running with a vote of 7-2, despite inflation returning to its 2% target this month.

The decision to hold the base rate came as a disappointment to the industry and to borrowers. Mortgage professionals said it looked likely the central bank was waiting for wage and services inflation to full further before adjusting the base rate.

However, economists are still banking on a base rate cut this summer.

The MPC is next due to meet on 1 August.

Despite predictions that inflation will fall to the bank’s target of 2% from its current position of 2.3% to be revealed a day before the base rate decision on 20 June, rate-setters are expected to hold fast.

At May’s meeting of the Monetary Policy Committee (MPC), two of the nine members voted to reduce the base rate – the interest rate that influences the cost of borrowing and how much we earn on our savings – to 5%. At the time, Governor Andrew Bailey left open the possibility of a rate cut in June, saying: “A change in bank rate in June is neither ruled out nor fait accompli”.

However, financial analysts think a June interest rate cut is no longer on the cards.

The bank did confirm that the economic data would dictate when it would start to cut rates and, according to economist Capital Economics, “the tone of the incoming data since then [has] been disappointing”.

Although the Consumer Prices Index (CPI), which is the overall measure of inflation, is expected to fall back to the Bank of England’s target of 2%, service inflation – which measures the cost of services such as holidays, eating out and entertainment – remains around 6%.

Wage inflation remains high

Meanwhile, upcoming wage data is creating concerns. The Office for National Statistics (ONS) reported wage inflation of 6% in the three months to April, which remains high. At the same time, more people are dropping out of the labour market.

“Barring a dramatic weakening in May’s inflation data [on] Wednesday, which the MPC will see in advance, we think the committee will vote decisively by 7-2 in favour of leaving bank rate at 5.25%,” said Ruth Gregory, deputy chief economist for Capital Economics.

Capital Economics expects to see the first base rate cut in August.

Thomas Watts, investment analyst at abrdn Portfolio Solution, said some financial markets are predicting there will not be a base rate cut until summer, which he said will leave investors looking to the bank for hints on when this will come.

“However, unlike May’s press briefing, June’s decision will just be accompanied by a brief statement rather than the full monetary policy report and press briefing.

“So, if there is no change to interest rates this week, there would be little guidance on when this is likely to happen. Last month, seven members of the Monetary Policy Committee voted to hold, while two voted for a cut. It’s likely that more of the MPC could join the cut cohort, but probably not enough to force a decision just yet,” he added.

Base rate cut in August ‘most likely scenario’

Steve Matthews, investment director of liquidity at Canada Life Asset Management, predicts another 7-2 vote in favour of holding the base rate at 5.25% in this month’s MPC meeting.

He said: “Despite recent data supporting a cut – such as the unemployment rate rising to 4.4% and expectations that the CPI will hit 2% on Wednesday – concerns about upcoming wage data and services inflation persist.

“While the European Central Bank [ECB] made a move last week, the Federal Reserve is taking a more cautious approach. This gives the Bank of England additional opportunity to make a well-timed decision.

“Although there is light at the end of the tunnel, we are still firmly in the tunnel. We maintain our view that a first cut of 25 basis points in August is still the most likely scenario.”

The rate is a sharp drop from the 3.2% recorded in the year to March, and means it’s at its lowest level since July 2021.

However, it’s slightly higher than the market consensus of 2.1%, but is now within touching distance of the Bank of England’s 2% inflation target.

The biggest downward contributor came from a record fall in gas and electricity prices, with the Office for National Statistics noting these fell by 27.1% in the year to April 2024. Gas fell by 37.5% and electricity by 21%, compared to a fall of 26.5% and 13% up to March.

Indeed, regulator Ofgem’s energy price cap saw average Standard Variable Tariffs (SVT) fall from £1,928 from January 2024 to £1,690 from 1 April.

However, falling energy prices were partially offset by rising motor fuel costs.

The average price of petrol rose by 3.3p per litre between March and April 2024 to stand at 148.1ppl, up from 145.8ppl in April 2023. Diesel prices rose by 3ppl in April 2024 to stand at 157.1ppl, down from 162.4ppl in April 2023.

These movements resulted in overall motor fuel prices falling by 0.3% in the year to April 2024, compared with a fall of 3.7% in March.

Elsewhere, the prices of food and non-alcoholic beverages increased by 2.9% on April 2023, a dip from 4% recorded in the year to March. Shoppers can take a moment to breathe a sigh of relief, as this figure is the lowest annual rate since November 2021.

The prices of tobacco and alcohol remained largely the same between March and April, but rose by 8% in the year to April, a drop from 11.9% in the year to March.

‘Psychological milestone’

Myron Jobson, senior personal finance analyst at Interactive Investor thinks the inflation figures are “a huge step in the right direction for personal finances”.

Jobson said: “It is a psychological milestone that will make many Britons feel good about where prices are heading after having to endure higher costs for necessities for a prolonged period.

He added it also gives rise to hopes that the UK central bank “is on the verge of succeeding in its effort to rein in price increases”.

“While the inflation report is unlikely to change expectations for when the Bank of England will begin to cut interest rates on its own, it could prove to be a significant development that gives policymakers confidence that inflation is returning to normal – one of the prerequisites to cutting the base rate.”

‘Millions are still struggling’

However, the CEO of TotallyMoney, Alastair Douglas feels that “while the news that inflation’s slowing is clearly a good thing, it doesn’t mean life is getting any easier.”

Douglas said: “The cost of living isn’t getting any cheaper — it’s just taking longer to get more expensive — meaning it’s likely that the millions of people who were struggling a year ago, still are today.

“Although the Bank of England and Government might both claim victory over the war on inflation, the truth is that mortgage arrears and repossessions are rising, unemployment is increasing, and 2.8 million adults are unable to work as a result of long-term sickness. Inequality is growing, and it’s impacting people’s wellbeing.”

On the potential for interest rates to reduce this summer, Douglas added: “Even though there’s a lot of talk around rate cuts, it’s important to remember that if and when it does happen, it’s unlikely it’ll suddenly drop below 5%.

“Higher rates are here to stay, and each day, more than 4,000 homeowners face a fresh financial shock when their existing fixed-rate deal comes to an end. Back in 2019, the average five-year fix was 2.89%, and now the average two-year deal is more than double that, at 5.91%.”

The organisation said the next phase of monetary policy should be to ease it, but there were questions around when and how quickly the base rate should fall. 

It said the MPC intended to wait for “clearer signs of receding inflation” to guard against “premature easing”, but the IMF said there was a risk of delayed easing. 

The IMF said: “Keeping Bank Rate constant as inflation and inflation expectations fall would raise ex-post real rates, which could stall or even reverse the recovery, and lead to an extended undershooting of the inflation target.” 

Ex-post real rates are the difference between the nominal interest rate, the interest rate before accounting for inflation, and actual inflation. 

It said a base rate reduction would balance these risks. 

The IMF said monetary policy should continue to be informed by incoming data and the MPC’s meeting-by-meeting approach was appropriate. 

The IMF said its staff saw “merit in a press conference after each MPC decision, akin to the approach taken by other major central banks”. 

This recommendation comes after Ben Broadbent, deputy governor of the Bank of England, said a base rate cut could come as soon as this summer. 

UK economy to recover this year 

The IMF said the UK economy was “approaching a soft landing”, with a recovery expected this year and “strengthening in 2025”. 

It also said disinflation had improved quicker than expected and inflation should durably return to the Bank of England’s 2% target by early 2025. 

Inflation figures for April were released today, showing it had fallen to 2.3%.