Blow for borrowers as Bank of England holds interest rates again at 5.25%

20 June 2024, 12:02 | Updated: 20 June 2024, 12:37

The Bank of England has given its latest updates on interest rates.
The Bank of England has given its latest updates on interest rates. Picture: Alamy

By Jenny Medlicott

The Bank of England has announced it's keeping the base rate of interest on hold at a 16-year-high of 5.25%.

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The Monetary Policy Committee (MPC) voted by a majority of seven to two on Wednesday to hold the bank rate.

The Bank's governor, Andrew Bailey, said policymakers "it’s good news that inflation has returned to our 2% target but added "we need to be sure that inflation will stay low and that's why we've decided to hold rates at 5.25% for now".

Some policymakers felt that services inflation - which looks only at service-related prices such as hospitality and culture - had remained stubborn, and wage growth was rising faster than forecast.

However, members Dave Ramsden and Swati Dhingra voted to cut rates by 0.25 percentage points.

The decision marks the eighth time in a row that the Bank has decided to hold the interest rates at a 16-year high.

It comes after the Office for National Statistics announced on Wednesday that inflation fell to 2% in May from 2.3% in April.

It marks the first time it has returned to the 2% target for nearly three years.

Experts had predicted there would be no change to the interest rates despite the fall in inflation.

The commitee said that the timing of the upcoming General Electon on July 4 was “not relevant” to its decision to hold interest rates.

Read more: Sunak pledges further tax cut after inflation drops to two per cent

Read more: UK inflation rate falls to lowest level in three years hitting Bank of England target

The Bank of England has held interest rates again.
The Bank of England has held interest rates again. Picture: Bank of England

Reacting to the MPC’s decision, Paul Broadhead, Head of Mortgage and Housing Policy at the Building Societies Association said the decision shows that the committee still wants to see further proof inflation will stay close to the target.

He said: “With inflation dropping to almost the 2% target, many mortgage borrowers might have been hoping for a cut in the Bank Rate today.  The decision to keep rates at 5.25% will be very disappointing news for them, as well as those looking to buy their first home.

“With 2 of the nine members of the Monetary Policy Committee voting for a cut today, it is clear that some are holding out for more overwhelming evidence that inflation can consistently stay at or close to the target.

“We still anticipate the Bank Rate will reduce this year, however this is happening much later and slower than we had anticipated earlier in the year. Homeowners who are coming to the end of a fixed-rate mortgage this year, will need to prepare for an increase in their mortgage payments.

“Anyone who is concerned that they may experience financial difficulties in the coming months, should contact their lender as soon as possible, preferably before missing any payments. They have a range of practical, tailored support available to anyone who may be struggling.”

The Bank's governor Andrew Bailey said officials “need to be sure” inflation will stay low before cutting interest rates.
The Bank's governor Andrew Bailey said officials “need to be sure” inflation will stay low before cutting interest rates. Picture: Alamy

Dr George Dibb, associate director for economic policy at the Institute for Public Policy Research (IPPR) said: “The Bank of England has tightened the screws too much for too long, holding back the UK’s economic recovery. It should have followed the European Central Bank by starting to cut rates today.

“The Bank has to balance lingering price rises, notably in services, with the UK’s zero economic growth and a cooling labour market. With inflation expectations back down to pre-pandemic levels, it’s time for the Bank to switch gears, support the economy more, and cut rates.”

Despite disappointment for borrowers, experts have predicted that a cut to interest rates could still be on the cards for later this summer.

Yael Selfin, Chief Economist at KPMG UK said: “We continue to expect the first rate cut in August, once the general election is over as inflationary pressures continue to ebb.

“The Bank officials have previously emphasised that even once Bank Rate is reduced, the monetary policy stance will remain restrictive relative to its neutral level, which we estimate to be around 3%. This should provide room for further easing once the first hurdle has been met.”

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