Will the Bank of England cut the base rate?

Inflation hits target but the jury's out on whether a rate cut will follow…

Will the Bank of England cut the base rate?

With the Bank of England’s Monetary Policy Committee meeting again today, all eyes will be on the announcement that follows  – potentially of a base rate cut.

Hopes of a cut might have been encouraged by the news yesterday that UK inflation fell to the Bank of England’s target rate of 2% in May.

This was according to consumer price inflation (CPI) data published by the Office for National Statistics. Annual CPI was 0.3% lower in May 2024 compared to the 2.3% in the 12 months to April. Prices rose at the slowest rate last month since July 2021. On a monthly basis, CPI rose by 0.3% in May 2024, compared with a rise of 0.7% in May 2023.

If a base rate cut does come, this will naturally bode well for mortgage rate cuts of course, hence the anticipation that greets  the committee’s decision.

Gareth Morgan (pictured left), director of mortgage and insurance broker Prime Financial Solutions and Mortgages, is optimistic about a base rate cut – at some point soon.

Why might there be a base rate cut?

“Hopefully with inflation coming under control and the election looming, we will see interest rates drop a little in the coming months,” Morgan told Mortgage Introducer, “which should help boost the property market activity further.

“The market has been particularly difficult after the fallout from Liz Truss’ mini-budget that wreaked havoc with the financial markets, and the continual increases in the interest rates that we have seen over the last year. Things have however settled a little more recently, which means we can focus more on helping our clients without the stresses of lenders moving the goal posts or withdrawing rates at short notice, for example.”

Morgan pointed out that the challenges which remain in the short term are more broad, with the potential threats posed by conflicts in Russia and the Middle East and what impact these could have on the world’s markets.

“Outside of any huge black swan events then hopefully we can get some stability and reduction in interest rates, which will help stimulate parts of the market that currently aren't as buoyant,” he commented.  “I also think there will be lots of firms leaving the market or retiring due to increased competition, increasing use of tech and quieter segments of the market, so it will be a busy time for those working hard on their businesses.”

Adam Oldfield (pictured second from left), chief revenue officer at  mortgage servicing provider, Phoebus Software, believes that after the recent ‘flatlined’ ONS figures on April gross domestic product – following three months of consecutive growth – it would be a tough call for those voting at today’s committee meeting.

“I suspect as well as the GDP flatlining, the BoE will not want to be seen as a pawn in the General Election debate,” Oldfield commented. “So I would suggest it will likely be July or perhaps even August before we see a rate reduction.”

It’s been a choppy period for mortgage rates in recent months, with fixed rates edging higher in May as markets anticipated that the base rate would remain higher for longer. 

READ MORE: ‘Brokers can help borrowers cut through all the noise’

How is the mortgage market faring currently?

Market rates have eased back again a touch in recent weeks to unwind some of the hikes, according to David Hollingworth (pictured second from right), associate director at mortgage broker L&C Mortgages. He believes we’re a step closer to the point when the Bank of England could feel confident enough that, with inflation coming under control, a base rate cut is viable.

“Few are anticipating that the Bank will feel the timing is right for an interest rate cut when the MPC announces its decision,” Hollingworth observed. “Consequently, mortgage borrowers hoping for an early cut in interest rates may have to wait longer than had been expected earlier in the year.   

“Although lenders are always tweaking their rates, the market has calmed a little in recent weeks. Future movement in rates remains uncertain and with the projected cut in base rate pushing further out, borrowers hoping for further improvement in mortgage rates face something of a waiting game.“

Nick Hale (pictured right), chief executive officer at Movera, a group of home moving businesses, has welcomed the inflation update, highlighting how it could support a base rate reduction.

“Inflation falling to the Bank of England's 2% target is positive news for the housing market and for consumers,” Hale said. “Though not everyone is convinced, this could lead to the Bank of England to hold or even lower the base rate.

 “We've already seen mortgage rates fall this year,  and whilst they are unlikely to drop below 4% any further decrease could still make buying a property more affordable.”

If that happens, it would of course  potentially stimulate buyer activity and be no small relief for both new borrowers and established homeowners looking to remortgage. So… the stage is set, the committee is gathering, and at around midday, we’ll find out its all-important decision.