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The Bank of England holds interest rates at 5%

ended 19. September 2024

 “The Bank of England has just announced interest rates have been held at 5%. The minutes can be found >> here <<. On the back of this a few Qs (answer any or all):

Was this the right or wrong decision in your opinion, and why?

What impact will this have on borrowers, savers, business and investors?

After the US Federal Reserve cut by 0.5% yesterday, does this leave the Bank of England at risk of being behind the curve on monetary policy?

19 responses from the Newspage community

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Editor
Gabriel McKeown
Head of Macroeconomics at Sad Rabbit - Substack Newsletter
While the Fed sprints towards easing, the BoE is taking a measured walk, carefully watching each step. The MPC voting to maintain interest rates signals a decisively cautious approach compared to the Fed, as inflationary pressures persist in the UK. The recent uptick in core and services measures highlighted that the inflation genie isn't fully back in the bottle. The persistence of services inflation is particularly noteworthy, as it often reflects wage pressures, which can be more challenging to bring down. However, with the latest GDP figures falling short of expectations, the MPC may need to recalibrate its monetary policy position in the coming months. Given this decision was anticipated, the immediate reaction of the pound may be muted, however it could begin to put pressure on gold prices, leading to a retreat from all-time highs. For now, the BoE has demonstrated that in monetary policy, it's not always about keeping up with the Joneses – or in this case, the Powells.
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Riz Malik
Independent Financial Adviser at R3 Wealth
Rates were held as expected (8-1) and with no meeting in October, the rate-cutting cycle should continue in the UK in November and December. There are question marks around our economic growth and by the next MPC meeting the ins and outs of the budget will be known.
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Ben Perks
Managing Director at Orchard Financial Advisers
The Monetary Policy Committee’s unsurprising decision to hold rates feels all too predictable.
They’ve prioritised stability with this announcement which is understandable, albeit boring.
Pressure will be on them to cut next time around to inject some panache into the property market and wider economy.
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Craig Fish
Director at Lodestone Mortgages
This was the wrong decision—it should have been a cut. It’s clear that rate cuts are necessary and will inevitably happen, yet the indecision from those on Threadneedle Street continues to reflect a ‘too little, too late’ approach.
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Adam Stiles
Managing Director at Helix Financial Partners
The Bank of England have with a vote of 8-1 agreed to hold base rate but have cautiously indicated a steady reduction in rates over time with more pressure on a rate reduction in November. Predictable decisions are always welcome to the market and savers in particular will breathe a sigh of relief. Borrowers should be pleased in the knowledge the market expected this and can expect more mortgage rates to come down in time.
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Justin Moy
Managing Director at EHF Mortgages
As expected, the ‘Stiff Upper Lip’ approach of the Bank of England means that we will need to wait until November at least for the next rate cut. The US Fed rate cut was too late to be realistically factored into proceedings, and the UK economy is reasonably stable compared to the US and Europe. Markets will react positively, mortgage rates may continue their recent slide as we inch towards our next cut.
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Jack Tutton
Director at SJ Mortgages
All eyes now turn to November following the committees decision to hold the base rate today. A strong vote of 8-1 in favour to hold the base rate shows the committee cation not to act too fast too soon. However, with the committee indicating further cuts in the remainder of the year, mortgage holders will be focusing on the next meeting in the hope that a cut will come then.
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Tony Castle
Managing Director at PFG Mortgages
As widely anticipated, the Bank of England has held firm on the base rate with a strong majority decision. While many borrowers might have hoped the BOE would follow the Federal Reserve’s 0.5% rate cut, that wasn't the case. However, mortgage rates continue to fall, making now as good a time as any to secure attractive deals.
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Michelle Lawson
Director at Lawson Financial
Unsurprisingly, but disappointingly, the widely expected hold was confirmed with an 8-1 vote. As summer fades and fall begins, this decision may be the last hope for a rate cut until November 7th. After their bold approach to raising rates, the committee now seems more hesitant to lower them, despite the aggressive stance taken by the US Fed yesterday. The question remains—will this caution come back to bite them?
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Dariusz Karpowicz
Director at Albion Financial Advice
The Bank of England's rate hold at 5% is as thrilling as a cucumber sandwich - safe, but dull. It's like using a watering can in a drought.
This freeze might dampen mortgage rate cuts, disappointing borrowers. Savers feel smug, but with inflation lurking, their gains are as impressive as a participation trophy.
For businesses and investors, it's 'steady as she goes' - like bringing an abacus to a smartphone launch. With the US Fed making bold moves, our BoE looks stuck in first gear.
A rate cut could have nudged our economy. Instead, we've got a decision as inspiring as beige carpet - functional, but boring.
In uncertain times, boldness wouldn't go amiss. The BoE's approach feels behind the curve - like arriving at a party as everyone's leaving. A missed chance to energise our economy.
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Wes Wilkes
CEO at IronMarket Wealth
Steady hands in a shaky world or if it ain't broke (yet), don't fix it seems to be the way Andrew Bailey and the monetary policy comitte have approached this months base rate decision.
Much like the US fed back in July, many wanted a cut but the data is just not signaling it yet. The worry of course is that the data deteriorates faster than expected and they find themselves once again behand the curve.
So no surpises here, so long as it ain't broke yet! Boring maybe best.
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Simon Bridgland
Director at Charwin Private Clients
The same thing is ringing in my ears onece again, 2% inflationary target. So with base rate put on hold once again, borrowers are left wondering when the next drop will be. Thankfully fixed money has been reducing over the last couple of months, and hopes are this could continue a little longer, affording mortgage holders some reprieve. For those looking at mortgage options such as lifetime mortgages it will interesting to see what happens with promise to reduce the stock of UK government bond purchases, how will this effect guilt yields over the comming days and weeks ahead, should those considering lifetime mortgages move on with plans a little faster than planned?
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Chris Barry
Director at Thomas Legal
With the ECB reducing rates last week and the Fed reducing by 50bps this week, the BOE had an opportunity to be proactive and prevent a worsening economic outlook.

The metrics driving their decision to hold rates 8-1 are predominantly outdated and not fit for purpose.

They argue that services ticked up driven by airlines but although fares are high, the number of flights are reducing.

The BOE should have a moral obligation as well as an economic one to help people right now.
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Andrew Montlake
Managing Director at Coreco
The Bank of England has acted true to form, opting for caution rather than a more assertive approach many had hoped for.
With core and services inflation proving stubbornly sticky, and a budget waiting anxiously in the wings, opting to hold fire until November could be seen as a sensible approach.
Markets have, however, priced in a further cut this year, and mortgage lenders are showing every sign of continuing their recent rate war as the battle for business intensifies in what has been a disappointing lending market this year.
Lenders will be hoping they can finish the year strongly, whilst borrowers will be disappointed that their monthly costs will not be reducing too much further.
The question now is whether those that decide to wait for further reductions before buying will find any potential saving more than wiped out by increasing house prices as demand continues to return to the housing market.
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Elliott Culley
Director at Switch Mortgage Finance
As expected the Bank of England would not be swayed by rate cuts by the US or in Europe and decided to hold the base rate. This is not surprising and plays into the cautious behaviour we have grown accustomed to with the Bank of England. The good news is rate cuts will come, even if inflation was to rise slightly over the next few months, just not as quickly as some would like. Time will tell if this end up being the right decision or not.
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Prem Raja
Head of Trading Floor at Currencies 4 You
The BoE have just voted to keep interest rates on hold (as expected)- what was interesting to see was that it was a 8-1 in favour of keeping rates on hold.

Sterling rose to 1.33 against the Dollar- the highest since 2022- it seems the market has reacted positively to this decision. I think this was the right decision from the BoE, the economy is not in a place where we are desperate to cut rates, and I personally think they may want to see what the Government does in October with the budget first before changing monetary policy.

With the Fed's decision yesterday to cut by 50bps, the BoE is not behind the curve as they have already cut by 25bps last month, however at least 1-2 more cuts are priced in before the end of the year, which is already reflective in lending rates.
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Elliott Benson
Owner at Sett Mortgages
As usual the Bank of England is totally behind the curve and has made the overly cautious and frankly pointless decision to keep the base rate at 5% for no fathomable reason.

Hopefully at the next meeting they will wake up to the needs of real people before voting.

The property and mortgage market has been quite positive recently and we need further cuts to keep this going and soften the blow to people ending their fixes in the coming months
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Alastair Hoyne
CEO, Finanze Capital at Finanze Capital
This outcome was expected. While inflation has thankfully held steady, we still need to see it stabilize further. As predicted, we’re likely to see a prolonged period of higher interest rates to keep inflation in check. Unofficially, this also encourages individuals and businesses to reduce excessive borrowing and focus more on saving or using existing funds for purchases. This strategy should eventually lead to lower interest rates when we want to stimulate borrowing again.

In the long term, I don’t foresee rates dropping below 3.5-4%, and reaching that level will require a gradual, phased approach. Borrowers will need to be more cautious and shop around, while savers should benefit, assuming institutions adjust their savings products accordingly. As for comparing the situation with the U.S., we need to keep in mind the significant differences between our economies. Until we have a population and economic strength comparable to theirs, following their lead isn’t particularly relevant
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
Most people expected this decision today, and I'd say it's no bad thing, as the mortgage market, and therefore the property market, performs better in a stable rate environment. When people think cheaper rates may be around the corner, they will put off making a decision and take a "wait and see" approach, so a stable base rate helps to remove that indecision from people's thought process and increases transactions.