MPC decision: Mortgage market divided on Bank base rate hold – Mortgage Strategy

The mortgage market was split on the Bank of England’s decision to hold base rate at 3.75% today, with some saying a rise was sorely needed.

The decision to pause base rate came as the Monetary Policy Committee (MPC) decided it was necessary to keep inflation, currently 3.1%, under control.

The MPC voted by a majority of 6–3 to maintain bank rate at 3.75%. Three members voted to increase base rate by 0.25 percentage points, to 4%.

The market agreed with the decision to hold base rate, but said the MPC would have to make hikes soon.

This sentiment was also said by the Bank of England governor Andrew Bailey, who said: “So far, higher global energy costs have had a limited effect on price and wage setting in the UK.

“But the longer this volatility persists, the bigger the impact it will have on inflation, and the more likely it is we will need to raise Bank Rate to ensure that inflation falls back to our 2% target.”

Property and mortgage experts were divided on the Bank’s decision to hold base rate.

Anthony Curtis, director of mortgage broker FORTO Finance, said: “The rest of the G7 has reacted to rising inflation – with the US Federal Reserve raising interest rates for the first time in three years yesterday and Japan set to hike rates tomorrow. The UK is not magically immune to the global oil shock. We’re not somehow a special case. With energy-driven inflation running at 3.1%, the MPC should have reacted really.

“So, I’m surprised the Bank didn’t increase rates. I should imagine many lenders feel the same way – they have been pricing a rate rise in.

“The hold decision means that next month a rise is pretty much nailed on.”

Other experts said the Bank was right to hold base rate.

Duncan Kreeger, chief executive of commercial mortgage and bridging specialist TAB, said: “The Bank of England was right to keep interest rates unchanged for the sixth month in a row – despite growing fears of an inflationary upsurge as oil prices climb.

“Leaving borrowing costs at 3.75% was the sensible option.

“Yes, higher energy prices could push inflation towards 4% this winter but we can’t ignore the state of the labour market – the number of people in payrolled employment fell by 26,000 in August – the Bank shouldn’t be hiking rates just because of higher oil prices.

“And the MPC doesn’t need to raise the base rate. The increase in government bond yields, which move inversely to prices, will naturally cool the UK economy and put downward pressure on inflation. This was the right decision.”