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Bank of England Holds Interest Rates at 4.25% Amid Economic and Inflationary Concerns

The Bank of England yesterday announced interest rates would remain at 4.25%, a decision that has received mixed responses from property experts.

Why the Bank of England Kept Interest Rates Unchanged

Interest rates are set to stay at 4.25% – a verdict that has come as a bit of a blow after the Bank of England slashed rates in August and then again last month.

The Monetary Policy Committee (MPC) stated that this decision was due to “heightened uncertainty in the economy,” following the UK Budget and US presidential election. Adding to the complexity, inflation increased to 2.6% in November, a factor that undoubtedly influenced their stance.

The Bank of England noted that the inflation increase was higher than expected and was driven by stronger price rises in core goods and food. Inflation across the services sector also remained elevated.

Governor Andrew Bailey remarked:

“We think a gradual approach to future interest rate cuts remains right, but with the heightened uncertainty in the economy, we can’t commit to when or by how much we will cut rates in the coming year.”

Inflation’s Role in the Decision

The recent uptick in inflation was a central factor in the Bank’s decision. November saw inflation climb to 2.6%, marking the second consecutive monthly increase, with core inflation hitting 3.5%. This persistent upward trend in prices has kept economic conditions uncertain and influenced the MPC’s caution.

Mixed Responses from Property Experts

Opinions among property experts have been varied, reflecting the uncertainty this decision has introduced into the market.

Stephanie Daley, Director of Partnerships at Alexander Hall:

“The Bank of England’s decision to hold interest rates at 4.25% comes as no surprise, given the current economic climate. With inflation rising, there’s clear upward pressure on prices. For borrowers and homeowners, stability in the base rate this month goes hand in hand with the expectation of very slow downward movement in the base rate.

Forecasts still expect future base rate drops next year, but in the short term, the sustained inflation trend will likely keep lenders vigilant. It is essential for home movers and remortgage clients to seek advice in what remains a very changeable market.”

Jonathan Samuels, CEO of Octane Capital:

“Whilst it’s been a largely positive year for the property market, the base rate reductions many hoped for haven’t materialised, and higher mortgage rates remain a challenge.

Inflation rearing its head again meant today’s hold was always likely. However, the silver lining is that we remain in a far more positive place than even a year ago, and buyers should continue to act with confidence in the market.”

Marc von Grundherr, Director of Bentham and Reeves:

“Not the Christmas cracker that many homebuyers were hoping for, but not quite a lump of coal either. Today’s hold on the base rate will do little to impact the current trajectory of the property market, particularly given the stamp duty deadline in place.”

Robert Sadler, Vice President of Real Estate at Excellion Capital:

“When the base rate was cut back in November, many expected at least two cuts before year-end. However, Excellion sensed the market’s response to Labour’s inflationary Autumn Budget would mean further cuts were unlikely.

With inflation rising and the 5-year SONIA swap rate up more than 30 basis points in the past week alone, investors are holding out for relief. Sadly, it hasn’t come today. Residentially, mortgage rates are likely to increase. Commercially, investor caution will grow as borrowing costs rise.

This also impacts government housebuilding targets, as project costs increase and timelines slow. At a time when ambition and calculated risk-taking are needed, today’s decision fosters caution and constraint.”

Implications for Borrowers, Homeowners, and Investors

The hold on interest rates signals challenging times ahead for homeowners and investors alike. For borrowers, this means continued high mortgage rates in the short term. Investors may also exercise more caution, particularly in the commercial sector, where borrowing costs are set to rise further.

Despite the challenges, the market remains more stable than it was a year ago. Experts advise homeowners and buyers to stay informed and seek professional advice to navigate the complexities of the current environment.

The Road Ahead for Interest Rate Policy

Looking forward, the Bank of England has hinted at a gradual approach to future interest rate cuts. However, the timeline for reductions remains uncertain due to the unpredictable economic climate. The property market is likely to see mixed impacts, with both opportunities and challenges arising as stakeholders adapt to the evolving landscape.

Read the original article on Newstart Magazine.