The Bank of England has left interest rates unchanged at 3.75%, marking a fifth consecutive meeting without a change despite persistent inflationary pressures.
Economists had widely expected the Monetary Policy Committee to hold rates, with three of the Bank’s nine rate-setting committee voting to increase the borrowing rate to 4%.
Markets will now focus on the Bank’s updated inflation and growth forecasts, as well as Governor Andrew Bailey’s comments, for clues on the future path of interest rates.
Recent economic data has presented a mixed picture. Inflation eased to 2.6% in June, while wage growth slowed and unemployment remained broadly stable, reducing immediate pressure for tighter monetary policy.
However, renewed tensions in the Middle East have pushed oil prices higher, fuelling concerns that inflation could remain above target for longer than previously anticipated.
For the property market, the decision provides further stability for borrowers after a prolonged period of elevated mortgage rates. However, any indication from the Bank that further rate rises remain on the table later this year could influence mortgage pricing and buyer confidence in the months ahead.
Industry reaction:
“What we need is lower rates, but I can’t see that happening in the short to medium term.
“In our offices, prices remain flat with sensible offers being accepted. There are more sellers than buyers, but sellers aren’t panicking – asking prices are coming down, but a lot of that is simply initial overpricing meeting the time it takes to find the market level. There’s definitely a point where owners simply won’t move at today’s numbers, and we’re seeing that more and more. It’s like a game of chicken – who moves first, the buyer or the seller?”
Jeremy Leaf, north London estate agent: “The recent fall in inflation has given the Bank of England some respite from cost-of-living pressures which have been building since resumption of the Iran War hostilities, and explains this hold.
“However, the relief is likely to prove short-lived as the impact of oil, energy and other prices will probably prove harder to manage when the next decision-time for rates comes around.
“The level of interest rates is so crucial, particularly at the moment, to maintaining activity, not just in the price-sensitive housing market but across the wider economy where stability is key.”
Nick Leeming, chairman of Jackson-Stops: “Today’s decision to hold the Bank Rate avoids adding further immediate pressure on households and gives the housing market continued policy stability.
Nathan Emerson, CEO at Propertymark: “By holding interest rates, the Bank of England has opted for a measured approach as inflation remains above its 2 per cent target. While price pressures have eased in recent months, today’s decision reflects the need to ensure inflation continues moving in the right direction before further policy changes are considered.
“A stable base rate provides greater certainty for the housing market. It gives lenders more confidence to continue offering competitive mortgage products while allowing buyers to make informed financial decisions. Savers also continue to benefit from relatively attractive returns on savings, helping some prospective homeowners build towards a deposit.
“However, inflationary pressures have not disappeared. Higher household costs, including July’s increase in the energy price cap, alongside ongoing uncertainty in global energy markets, mean the Bank of England is likely to continue taking a cautious, data-led approach over the coming months.”
Kevin Shaw, national sales managing director at LRG: “Today’s decision to hold Bank Rate gives the housing market another period of welcome stability. Buyers and sellers may still wish mortgage rates were lower, but the Bank Rate remains below the 4.25% recorded a year ago and the 5.25% seen two years ago. The direction since July 2024 has been down or sideways and a more settled interest rate environment allows people to plan with greater confidence.
“A hold was always the most likely outcome. Inflation remains above the Bank of England’s 2% target, but softer employment conditions and easing wage growth suggest that underlying domestic inflationary pressure is continuing to recede.
“That resilience is reflected in LRG’s sales performance. July has remained active despite school holidays, exceptionally hot weather and the considerable distraction of the World Cup. Buyers and sellers are still moving for work, schools, relationships and lifestyle changes and the housing market rarely waits for every economic light to turn green at once.”
Andrew Lloyd, managing director at Search Acumen: “Uncertainty is currently the order of the day, as this new Government finds its feet and irons out its policy. Against that backdrop, the decision to keep the ship steady and hold interest rates at 3.75% is welcomed by homeowners and businesses alike, especially after predictions of a potential rise, as 16 banks and building societies raised mortgage rates this week amid ongoing instability in the Middle East.
“Inflation is of course not controlled from Threadneedle Street, despite the best efforts of the MPC, and we will likely need to see a long-term resolution to the conflict in Iran if rates are to come down. We saw EY this week note that GDP growth is expected to slow to 0.9% this year and further to 0.7% next year, influenced primarily by rising oil prices.
“But whilst Britain cannot control events overseas, it can tackle the frictions holding back growth at home. From planning reform and housing delivery to productivity and tax competitiveness, there are levers firmly within the Government’s grasp. Reform to any of these could take years to have an effect, so the spotlight is on measures that could support growth in the immediate term. And as the base rate is expected to rise to 4% in September, we need to think about ways to boost confidence, spending, and investment ahead of this change. Affordability concerns and debt levels continue to be primary market drivers. The road ahead feels uncertain, but hopeful, if swift action can be taken.”
Colleen Babcock, property commentator at Rightmove: “There’s stability for now as the Bank of England holds its Base Rate as widely expected. We’ve seen average mortgage rates increase over the last few weeks as geopolitical tensions have escalated, and the average two-year fixed rate is currently coming it at 5.11%. For broader context, this is up from 4.25% before the war in Iran started, but down from around 5.43% at the peak of tensions in April. For home-movers, rates remain elevated which continues to stretch affordability. However, while rates are high, they’re also relatively steady, which helps movers to plan and make decisions. Even relatively small changes in mortgage rates can have a noticeable impact on monthly repayments, particularly for first-time buyers, so any downwards movement in rates during the second half of this year would be very welcome.”
Oliver Prior, managing director of Auction House: “A hold at 3.75%, together with a steadier economic picture and mortgage rates that have edged down to an average of 4.92%, means buyers and investors can start to plan ahead with a little more confidence. That should help ease some of the caution of recent months, which drove a summer fall in asking prices around five times the usual, according to Rightmove. Those prepared to take a longer-term view will be in a particularly strong position when it comes to new investments.
“The wider market may have been subdued, but auction has continued to buck the trend. The latest figures from Essential Information Group show 4,042 lots offered in June, up 36.5% on the same month last year, with total funds raised up 38% to £537.3 million.
“More sellers are choosing the certainty of a fixed timetable and a defined completion, while buyers value a transparent process with a clear price. Auction House is selling more property than ever, which is a real testament to the health of the sector.”
Sarah Thompson, group financial services director, mortgage scout, part of LRG: “Today’s decision to raise the base rate will come as unwelcome news to many borrowers, but it reflects the pressures that have been building beneath the surface over recent months. While inflation has come in lower than expected, at 2.6% against a forecast of 2.7%, the Bank of England has clearly judged that other risks, including rising swap rates and ongoing political and gilt market uncertainty, outweigh that positive signal.
“We have already seen several major lenders raise their mortgage rates over the past week in anticipation of this move, so today’s decision confirms a shift that was already underway rather than triggering a completely new one. With the energy price cap due to rise later this year, the Bank will also be conscious that today’s better-than-expected inflation figure may not hold for long.”
Nicky Stevenson, MD of Fine & Country: “Today’s decision to leave the Bank Rate unchanged at 3.75% offers further reassurance for buyers and sellers looking for stability after a period of heightened uncertainty. The Bank has understandably chosen to remain cautious as it continues to monitor ongoing inflationary pressures, providing a greater sense of certainty for those planning their next move.
“The encouraging news is that the underlying fundamentals of the housing market remain intact. Mortgage approvals are edging upwards, transactions continue to run ahead of last year, and there is clear evidence that committed buyers are still progressing with their plans.
“Today’s market is also one of opportunity. With more homes available than we’ve seen for some time, buyers have greater choice and stronger negotiating power, but sellers who price their properties realistically from day one, are continuing to secure successful sales. In contrast, homes that chase yesterday’s prices are finding themselves lingering on the market.
“External events will always influence sentiment, whether that’s geopolitical tensions or fluctuations in mortgage pricing, but the housing market is underpinned by people moving for genuine life reasons. Those non-discretionary movers continue to drive activity, ensuring the market remains active even in more challenging economic conditions.”
