The Bank of England has maintained the current interest rate at 5.25%, despite a fall in inflation.

Inflation dropped to 3.4% in February – down from 4% a month earlier and the lowest since September 2021, when it was 3.1%.

The positive news yesterday came ahead of BoE’s latest interest rate decision a short while ago.

The Bank of England says its Monetary Police Committee voted 8-1 in favour of keeping interest rates unchanged at 5.25%.

It added that one member preferred to reduce the rate down to 5%.

The last time it made a decision on interest – at the start of February – it voted by a majority of 6-3, also to hold rates.

Bank of England Governor Andrew Bailey says it is “not yet” the time to cut interest rates.

Bailey says he has seen “further encouraging signs” that inflation was coming down, but added policymakers had to be sure that it would fall back to its 2% target and “stay there”.

“We’re not yet at the point where we can cut interest rates, but things are moving in the right direction,” Bailey added.

Industry reaction

Ed Phillips, CEO of Lomond, commented: “Having previously endured 14 consecutive base rate hikes since December 2021, it’s been a case of no news is good news for the nation’s homebuyers of late when it comes to the Bank of England’s decision on interest rates.

“That said, they can be forgiven for feeling a little disappointed that we didn’t see a cut materialise today, particularly given this week’s inflation figures.

“While a hold on interest rates has helped stabilise the market, the cost of borrowing remains a significant obstacle for many and while we’ve seen a strong start to the year, a reduction in interest rates would help to open the floodgates and drive market momentum forward.”

Dominic Agace, chief executive of Winkworth, said: “It is encouraging that inflation data points to a more optimistic outlook in earlier cuts, and so with a bright start behind us and a late election now being mooted, hopes for 2024 are rising for the property market.”

Jeremy Leaf, north London estate agent, commented: “The Bank’s decision to hold rates is not surprising but the pressure is building for a cut sooner rather than later.

“The inflation figure always helps set the trajectory for rates and its present level, with the prospect of further drops, will probably force the Bank’s hand at some point.

“Further falls in the pace of wage growth in particular will contribute to the decision making but we have already noticed mortgage payments at least are beginning to fall again as they are not bound by the same constraints and are certainly helping to build confidence in the housing market to take on debt.”

Amy Reynolds, head of sales at Antony Roberts in Richmond, said: “It is no surprise that the Bank of England has held rates at 5.25 per cent, and we expect the same at the next meeting.

“If the inflation target is hit, we could see a rate reduction as early as June, which in turn will stimulate borrowing if lenders re-price and start offering circa 4 per cent mortgages.

“In an election year, the government will be very keen to be on track with its inflation forecast, as any positivity helps consumer confidence and the property market. The market relies on confidence; stable interest rates mean a stable, albeit relatively dull, market. A rate reduction as soon as possible will therefore be pivotal in stimulating activity in the property market.”

Emily Williams, director of research at Savills, commented: “Although base rate remained unchanged today, there are welcome indicators that should bring confidence to the housing market. This was the first meeting since September 2021 in which no members voted for a rate increase, which, coupled with the lowest rate of inflation for over two years, will give mortgage markets further confidence that the Bank will be in a position to cut the base rate in the coming months.

“This should provide a further boost to the housing market, which has already seen a stronger than expected start to the year.. In the first eight weeks of the year, the number of sales agreed were up 31% compared to the same time last year, according to analysis of data from TwentyCI. Last week’s RICS survey also suggested growing confidence, with positive sentiment for both new buyer enquiries and new sales instructions for the second month in a row.”

Guy Gittins, CEO of Foxtons, commented: “Homebuyers have been waiting patiently for an interest rate reduction and while it is largely expected to come this year, it seems as though they will have to wait a little longer still. The positive to take is that an air of stability has returned to the UK property market since rates were held at 5.25% last September and this has helped revitalise buyer activity levels in recent months.

“In fact, it’s fair to say that the market has picked up the pace considerably and not only have we seen a 23% increase in sales enquiries versus this time last year, but there’s also been a 19% increase in viewings activity and we reported on 5 March 2024 that we’d seen a 31% increase in the number of offers being accepted.

“The higher cost of borrowing certainly remains an obstacle for many buyers, but there continues to be an abundance of opportunity for those who can secure a mortgage with the help of an experienced mortgage broker like Alexander Hall.”

Sam Reynolds, CEO of Zero Deposit, remarked: “It’s not just homebuyers who were hoping to see rates come down today, landlords were also in need of some property market positivity to help revitalise their appetite for buy-to-let investment.

“Not only have many been suffering at the hands of expensive variable rate products, but all too often they will have been doing so while only repaying the interest on their loan. As a result, they will have seen the cost of their mortgage increase by a far greater margin in the long run compared to those making full monthly repayment.

“With the cut on capital gains tax unlikely to act as the carrot to investors that the government intended, a rate cut would, at least, have reduced pressure on existing buy-to-let investors which in turn would have filtered through to tenants.”

Jason Harris-Cohen, CEO of Open Property Group, stated: “It’s been a month of double disappointment for homebuyers so far, with a lacklustre Spring Budget providing no initiative to transact and now their hopes of a interest rate cut have also been dashed.

Inflation has been heading in the right direction and the property market is showing strong signs of recovery, however, a rate cut would have delivered the shot in the arm it needs to really move forward at pace.”

Rightmove’s Matt Smith said: “Although today isn’t the day for the first Base rate cut, each day that passes is one step closer, and it’s very much a ‘when’ rather than ‘if’ we see the first drop from 5.25%.

“Mortgage rates have risen slightly over the last 6 weeks but it does feel like the pressure on lenders to increase rates has dissipated, with some lenders having already cut rates in response to yesterday’s positive inflation news. This may mean that average mortgage rates start to fall back in the next couple of weeks. If this is the case it will be first time average rates will have reduced in over a month.

“Homemovers shouldn’t expect to see a rush of rate cuts, but the two announcements this week should hopefully continue to give movers more confidence than they perhaps had at the start of last year. That’s certainly been the theme so far after the first quarter of the year – with more people enquiring to purchase homes, more sellers come to market and more sales being agreed than this time last year.”

Marc von Grundherr, director of Benham and Reeves, added: “Continued certainty is no bad thing but homebuyers are crying out for some form of relief, particularly in London where the combination of high house prices and high mortgage rates are dampening purchasing power to the greatest extent.

“Today was the last chance to offer some form of stimulus to help supercharge the spring surge in market activity and while we still expect an uplift in market activity, many buyers will remain on the fence until such time an interest rate reduction materialises.”