The Bank of England held its base interest rate at 5.25% for the fourth time in a row today, but its Monetary Policy Committee was divided on the decision.

It means the rate remains at a 15-year high for the first part of the new year, as the Bank moves cautiously in its battle with inflation.

SPLIT DECISION

The Bank’s Monetary Policy Committee voted by a majority of 6–3 to maintain the rate at 5.25%. Two members preferred to increase the rate by 0.25%, to 5.5%. One member voted to reduce the rate by 0.25%, to 5%.

Andrew Bailey, the Governor of the Bank of England (main picture), and Huw Pill, Chief Economist, are both believed to favour a hold in the rate.

DOWNWARDS

Today’s decision was widely expcted even though there was a surprise increase in inflation during December to 4% from 3.9%.

Most City analysts believe the inflation trend is firmly downwards, with some even saying the Government will reach its target of 2% by April.

INDUSTRY REACTION

Dominic Agace, CEO at Winkworth, says: “It’s sensible to hold the rate, as while all the indicators point to a return to inflation target by April and rate cuts, it’s important to not get carried away.

“Inflation remains high and to ensure there are no unpleasant surprises, it’s vital that we pursue a steady and predictable path,” he says.

“The property market hates uncertainty and surprises, which was demonstrated by the fall-out as a result of the Liz Truss Budget. A steady approach reducing rates makes for the best approach for a property market that people can predict and so trade in.”

Jonathan Samuels, CEO of Octane Capital, says: “It appears that the Bank of England’s slow but steady approach to managing the economy has finally started to pay off, with inflation falling sharply this week.

“Generally speaking, today’s decision to keep the base rate held should bring further positivity for the economy and the property market, in particular.

“But while it’s likely to stoke the fires with respect to the increasing number of buyers returning to the market in recent weeks, they are best advised to proceed with caution,” he says.

“Swap rates have been gradually climbing so far this year in anticipation of today’s decision and so an ongoing degree of certainty where the base rate is concerned doesn’t necessarily mean lower mortgage rates are guaranteed.”

Guy Gittins, CEO at Foxtons, says: “A freeze on interest rates since September of last year resulted in 2023 finishing with a far higher degree of mortgage market positivity than many had forecast and it’s now clear that this positivity has carried over into 2024.

“We’ve already seen a promising start to the year compared to January last year, as buyers have returned to the market.

However, the potential now is that mortgage rates could start to climb following a fourth consecutive decision to keep the base rate frozen at 5.25% and we’ve already seen evidence of lenders increasing swap rates in recent weeks in anticipation of today’s news,” he says.

“This will further add to the air of urgency shown by buyers of late, who have been encouraged by sub 4% mortgage opportunities and have been keen to secure them while they are available.”

Verona Frankish, CEO of Yopa, says: “Today’s decision won’t necessarily add to the property market positivity seen so far this year, but it certainly won’t diminish it either.

“Whilst the cost of borrowing remains higher than the nation’s borrowers have become used to, they should be reassured that we’ve likely seen the peak where interest rates are concerned and that any future movement will be downwards.

“This should help draw more buyers back to the market and we anticipate that the uplift in market activity seen during the closing stages of last year will continue to build throughout the year ahead.”