Bank Rate Holds Steady at 5.25%: A Glimpse into Future Rate Movements:

The Bank Rate has once again maintained its status quo, hovering at 5.25%, marking the fourth consecutive month without alteration since its elevation from 5% in August 2023. Despite murmurs of anticipation for a reduction, the rate remains resilient.

Inflation Update:

In the economic landscape, inflation has undergone significant fluctuations over the past year. While it has seen a decline, standing at 4% in December 2023, it still surpasses the Bank of England's target of 2%. This unexpected uptick from November's 3.9% figure adds an element of uncertainty.

Factors Influencing the Decision:

The monetary policy committee of the Bank of England, in a 6-3 majority vote, opted to maintain the Bank Rate. Two members advocated for a 0.25% increase, while one proposed a similar decrease. Despite favourable shifts such as falling energy prices and moderated wage growth, concerns persist regarding the potential resurgence of overall inflation.

Geo-Political Impact:

External factors, including the Middle East conflict and attacks on container ships in the Red Sea, contribute to the apprehension of a faster rise in prices. The committee foresees a temporary dip in inflation to 2% in the second quarter of 2024, followed by a subsequent increase later in the year.

Projections and Mortgage Rates:

The committee's forecast, envisioning inflation at 2.3% in two years and 1.9% in three, currently steers away from rate cuts, despite modest economic growth. Speculations, however, suggest the possibility of a cut in May or June.

Mortgage Market Dynamics:

While variable-rate borrowers may find the absence of a mortgage cost reduction disappointing, the past six months witnessed lenders trimming rates on new mortgage deals. Although this is advantageous for first-time buyers, those contemplating remortgaging might face increased repayment costs.

Impact on House Prices:

Higher mortgage rates in 2023 led to a decline in property purchases and mortgage lending, as indicated by UK Finance. However, contrary to expectations, more than half (56%) of homeowners experienced stable or increased home values in 2023. The average value increase stood at £7,800.

Outlook for the Mortgage Market:

Despite the downward trajectory of mortgage costs, rates remain relatively high compared to preceding years. Rate cuts appear on the horizon, presenting favourable prospects for first-time buyers and homeowners.

Written by Veera Josey, 2nd February 2024

Source: BBC News