According to experts in property and finance, the Bank of England appears to be taking a careful approach to adjusting the base rate, similar to how the US market is behaving.
The Bank decided to keep the base rate at 5.25% recently, which came after the US Federal Reserve maintained its main interest rate in the range of 5.25% to 5.5%.
Nicholas Hyett, an investment manager at Wealth Club, remarked that it seems central banks globally are waiting for the US Federal Reserve to lead the way with rate changes.
“If the Fed begins rate cuts, other countries will likely have to follow due to currency impacts. Typically, the UK tends to walk in step with the US,” he stated.
Adam Oldfield from Phoebus Software observed that the US, like the UK, is also anticipating lower rates down the line. However, the strategy for the moment is to proceed with caution.
“Many lenders are second-guessing this cautious approach, concerned that eventual rate cuts might not be sufficient or timely enough,” he mentioned.
The BoE’s Monetary Policy Committee voted 8-1 to maintain the borrowing cost at a 16-year high of 5.25% last Thursday, noting a shift in opinion among two members who previously supported an increase.
Adrian Anderson from Anderson Harris noted the earlier part of 2024 showed a stark contrast between the Bank of England’s strong stance on high base rates and the market trend towards lower fixed mortgage rates – a divide that is now closing as demonstrated by a gradual increase in fixed mortgage rates.
Nick Leeming of Jackson-Stops shared that the recent rate decision was expected and may signal that we are close to seeing the rates drop, possibly by May, given the progress in the fight against inflation. Despite the long road ahead for the economy, keeping rates steady could provide a solid base for the property market.
One analyst believes the base rate could reduce to 4.0% by year’s end.
Mark Harris of SPF Private Clients highlighted the decline of inflation to 3.4% and the growing belief that the Bank of England will soon cut interest rates. He advocates for an immediate reduction to bolster borrower confidence and aid the housing market.
“With the Monetary Policy Committee’s voting patterns showing a slight move towards rate reduction recently, there’s a sense that a cut is on the horizon. By the end of this year, we might see the base rate near 4%, especially if inflation keeps trending towards its 2% goal,” Harris said, expressing that this would benefit those facing affordability issues.
“Mortgage pricing doesn’t solely depend on the base rate. If Swap rates, which are the basis for fixed-rate mortgages, decrease further, this can lead to lenders offering more competitive mortgage rates. After a slow year in 2023, lenders are eager to give out loans and are looking for an uptick in business,” he concluded.
