Bank of England votes 8 to 1 to leave rates on hold at 16-year high of 5.25%

The benchmark cost of borrowing in the UK is staying at a 16-year peak, at least for now, after the Bank of England kept interest rates on hold at 5.25%.

The nine-member monetary policy committee was expected to leave interest rates on hold in its decision, announced at midday. Only one member of it voted against keeping rates steady and called instead for a cut to 5%. Last time, there were two members who thought rates should rise and one who backed a cut.

This was the first MPC meeting since September 2021 with no call for a hike.

City wealth manager Evelyn Partners, called it “a notable shift in the committee votes”. Its investment strategist Rob Clarry, added: “today’s change in votes signals that we are getting closer to interest rate cuts. Haskel and Mann, longstanding hawks, dropped their votes for higher rates.”

The committee’s decision affects the cost of millions of existing mortgages and other loans as well as the rates on offer from lenders to first-time buyers and others moving around the housing market. Activity in it has slowed dramatically during the 14-consecutive hikes from December 2020 to last August.

City financial markets are pricing in a rate cut in June, putting the chances at around two-thirds. The chances of the first cut coming in May, when the next meeting is due, are seen at about a fifth.

The BOE has previously signalled rates would be higher for longer in order to ensure that the fight against double-digit inflation, which prompted the rises, has been won.

Numbers out this week showed that the rate of price rises fell to 3.4%, nearer to the BOE’s official 2% target and down from the peak over 11% in the autumn of 2022 when energy prices were high after Vladimir Putin’s invasion of Ukraine.

The next move from the MPC is expected to be a cut. But predictions on the timing have moved further back, to June or August, meaning rates will have been up at 5.25% there for almost a year.  

The BOE, and its Governor Andrew Bailey, has indicated it expects the interest rate to stay higher for longer to make sure that the fight against inflation is secures after soaring energy costs after Vladimir Putin’s invasion of Ukraine sparked the cost-of-living crisis via double digit inflation which peaked over 11% in October 2022.

Recently, the cost of mortgages on offer to home buyers have ticked back up as City forecasts for the timing of cuts from the monetary policy committee have moved back.

So-called “swap rates” in the wholesale financial markets, which directly affect the cost of home loans on offer to borrowers, have been inching back up and typical 5-year fixed mortgages have crossed back above 5%.

There were hopes that the clearer outlook for a rate cut could breathe life into the house market.

 Sam Mitchell, CEO of online estate agency Purplebricks said: “We anticipate a window of positivity between now and the general election where the market remains strong, with house prices continuing to rise month-on-month and an uptick in buyer demand.”