The mortgage market reacted by welcoming the Bank of England’s decision to hold the base rate at 3.75% today.
The Bank’s Monetary Policy Committee (MPC) voted unanimously to keep the key rate at its current level.
The decision to hold the base rate came as many members of the MPC decided that this was the best course of action to keep inflation on track.
CPI inflation is now 3.3%, with the Bank aiming for 2%.
The bank said: “Wthey are holding the Bank Rate at 3.75% – after cutting it six times from August 2024.
“The war in the Middle East has disrupted the transportation and supply of energy, increasing the price; this will increase the prices of fuel and utilities and the costs of companies. Therefore, inflation will be higher than expected, at least in the short term – and the impact will be greater the longer the war continues and its impact on the supply of energy around the world.
“Higher electricity costs can also dampen the economy as people and businesses will have less money to spend on other things – the MPC is assessing what this will mean for inflation.
“Monetary policy cannot affect global energy prices; but we will make sure that, as we adjust to it, we do so in a way that achieves the 2% inflation target consistently.”
The next MPC decision will take place on 18 June.
Housing experts say the MPC’s decision to hold is difficult but unexpected.
Ben Allen, managing director at The Right Mortgage & Protection Network, said: “The MPC’s decision to hold the BBR may come as little surprise given the rise in inflation last week, but at the same time, members have clearly wondered what can be achieved with an increase of this level.
“The answer is probably very little, other than piling more pressure on mortgage borrowers at a time when the cost of living is rising. The last hold decision gave the Committee some breathing room, and now that that time has passed, it’s clear they still see enough uncertainty to avoid moving too quickly. A steady ‘wait and see’ approach always sounds like the most likely outcome.”
Jeremy Leaf, an estate agent in north London and former chairman of RICS, said: “While interest rates will rise again before retreating, the hold today is consistent with continued inflationary pressures due to the impact of the war in the Middle East.
“In terms of the impact on the property market, the results may be minimal although encouragingly we have noticed that some mortgage rates are starting to come down again. This will certainly help to improve confidence which remains at a relatively low level.”
As the Middle East conflict fuels UK inflation, markets are already pricing in a rise of up to 4.25% this year, according to SONIA figures.
Nottingham Building Society’s head of savings, Harriet Guevara said: “Although today’s decision to hold the base at 3.75% was very much expected., the big story is how much the perception has changed.
“For the past few months, the markets have been reducing prices. Now, as the conflict in the Middle East raises energy prices and rising inflation expectations, the markets are making prices more bearish than falling, possibly reaching 4.25% by the end of the year.”
