Interest rates: Bank of England keeps rates the same at 5.25% despite fall in inflation as FTSE 100 hits 10-month high

Rishi Sunak has full confidence in the Bank of England’s governor Andrew Bailey following the decision to leave interest rates unchanged.

The prime minister’s official spokesperson said: “Interest rates are rightly a decision for the independent Bank of England.

“As I said earlier, with inflation dropping to 3.4%, real wages rising, mortgage rates starting to fall, there’s clear sign that the economy has turned a corner after the shocks of the last few years.”

Asked whether the prime minister had confidence in the governor, he replied: “Completely”.

Stephen Gomez, specialist mortgage adviser at Wesleyan Financial Services, said: “Another ‘hold’ decision is unlikely to lead to any drastic changes in the mortgage market.

“However, taken together with yesterday’s data confirming that inflation is slowing, it may help soften some of its current volatility – we’re still seeing some lenders increasing rates.

“The Bank of England is expected to start cutting rates sometime in the coming months.

“But for now, people remortgaging and borrowing for the first time will almost inevitably have to accept higher rates than they could get two or five years ago. It’s really important that they time to review all possible deals to make sure that whatever they’re going for is the best option for their specific circumstances.”

Responding to the Bank of England’s decision to keep interest rates at 5.25%, Liberal Democrat Treasury spokesperson Sarah Olney MP said:“This is cold comfort for millions of homeowners who still face massive hikes in their mortgage bills after Liz Truss crashed the economy.

“Many families still face a mortgage cliff edge despite this news. Liz Truss’s disastrous mini-budget and the Conservative party’s economic vandalism has put intolerable pressure on people’s finances.

“This Conservative government has no good story to tell on the economy.

“The only way to break this cycle of stagnation and financial hardship is to kick this out of touch government out of office. Rishi Sunak needs to stop his desperate attempt to cling on to power and call an election.”

Reacting to today’s decision by the Bank of England’s Monetary Policy Committee Carsten Jung, senior economist at IPPR, said:

“Inflation is coming down more quickly than many predicted just a few months ago. This is largely due to global supply chains recovering and energy costs falling. But also domestic price pressures are falling quicker than the Bank had anticipated.

“All this shows the Bank of England tightened the screws too much, which is squeezing much needed future growth. The Bank should thus cut rates more quickly than its current plans. The tightening stance by both the Chancellor and the Bank of England contribute to the UK’s growth falling far behind the USA’s fast recovery.”

Ruth Gregory, Deputy Chief UK Economist, at Capital Economics said: The Bank of England sprung no surprises, leaving interest rates at 5.25% for the fifth time in a row and, despite no MPC members no longer voting to raise interest rates, it retained its relatively hawkish guidance.

“But it is the data not the guidance that counts. And our forecast that inflation will fall further and faster than the Bank expects suggest it will change its tune in the coming months.

“That’s why we think a rate cut in June is possible and why we think rates will fall to 3.00% in 2025 rather than to 3.75-4.00% as priced into the market.”

Marion Amiot, senior European economist at S&P Global Ratings on the decision: “The Bank Of England will need to see a lot more moderation in wages and services prices before it starts cutting rates. We don’t expect that to be before August as the labor market remains tight.

“While vacancies are falling, the workforce is barely expanding, supporting pay increases that are well above productivity gains and the 2% inflation target.”

Foxtons chief executive, Guy Gittins, 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.”

Lomond CEO, Ed Phillips, said: “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.

And Director of Benham and Reeves, Marc von Grundherr, 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.”

Professor Joe Nellis, MHA’s Economic Advisor and Professor of Global Economy, Cranfield School of Management, said: “Yesterday’s sharper than expected fall in headline inflation for February shows that the UK economy is beginning to show signs of recovery.

“While the MPC voted to keep rates unchanged this month, optimism around GDP coupled with the downward trend for inflation indicates that they could start to cut rates sooner than expected – perhaps as early as May.

“There are likely to be at least two additional cuts in interest rates this year after the initial cut in May or June. Interest rates are likely to normalise at around 3.5 to 4% by the beginning of 2025, but they will not be falling to the record lows enjoyed by borrowers in previous years.

“The Bank of England’s default position is to set interest rates at 2 to 3% above inflation to give them some leverage and control over inflationary pressures – they would prefer to be in a position of ‘pulling on a string’.”

The Bank of England has kept interest rates at the same level of 5.25 per cent, as widely predicted by financial markets.

Following the decision to hold rates at 5.25 per cent, BoE governor Andrew Bailey said: “In recent weeks we’ve seen further encouraging signs that inflation is coming down.

“We’ve held rates again today at 5.25% because we need to be sure that inflation will fall back to our 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.”