It was widely expected that the Bank of England (BoE) would decide to stick with interest rates at their current level of 5.25%, and they did!
Rates have been held at the 5.25% mark since August 2023. After the previous announcement some believed rate cuts would happen this time around but sentiment was turned on its head when inflation appeared to be stickier than expected and the rate reduction was evidently pushed back. The consensus remains that rates will be cut sometime in 2024, but the timeline has certainly been kicked down the road slightly.
Inflation is currently at 3.2%, down from a high of 11.1% in 2022 but still above the 2% target. At the last meeting in March 2024, only one member of the Monetary Policy Committee (MPC) votes to reduce rates. However, in this vote, we saw a more favourable split of 7-2. Does this signal that we may see cuts next time around? It’s hard to say. But the industry remains hopeful for reductions in the near future.
In the meantime, finance experts have been sharing their reaction to today’s Bank of England interest rate news:
George Lagarias, Chief Economist at Mazars comments: “Today’s decision to maintain the basic interest rate at a 16-year high was a foregone conclusion. Rate cuts at some point this summer are also baked in prices. The question for consumers is not whether the BoE will cut rates this year, which is highly probable, but rather whether it is ready to enter a rate cut cycle. Multiple rate cuts might be difficult, with the US Federal Reserve maintaining cycle-peak rates for the foreseeable future, as this would risk capital flight and importing American inflation. The Bank probably knows that a lower rate is appropriate at this point. It is possibly buying time for wage inflation to come down a bit further and for the Fed to make its own intentions clearer. While rate cuts are probably on the way, businesses and consumers should not plan for multiple rate cuts right away.”
Derrick Dunne, CEO of YOU Asset Management, commented: “By the Bank of England’s own measures every indicator suggests the economy is feeling the full effect of higher rates, with loosening labour conditions, receding price rises and haltering economic growth. But the bank appears concerned by developments overseas that have led to the reignition of price growth.
“It is understandable that the majority on the Monetary Policy Committee is keen to hold rates at current levels, although there is now a clear voice for lowering rates emerging with two voting to reduce by 25 basis points.
“Markets have taken note of higher rate expectations in the US, but the UK and EU look well set on the path to reductions, although the pace and promptness of that are still open to debate. Sweden for its part (as a non-euro EU nation) has cut rates suggesting we’re soon to see elsewhere follow suit this side of the Atlantic. The US is no longer a clear-cut indicator, especially considering demand has been persistently higher than expected despite Fed activity, and now looks divergent from Europe.
“For investors the message is clear, however, that plans need to remain in place to weather any event, be it higher, lower or rates staying the same. Anyone interested in their long-term wealth growth should consider all outcomes and speak to an adviser if they are unsure how to position their portfolios.”
Nick Henshaw, Head of Intermediary Distribution at Wesleyan, said: “At the start of this year up to four rate cuts were widely expected during 2024, starting as soon as May, but expectations over the scale and timing of those cuts have now been scaled back. We’re now playing a waiting game, which advisers will need to help clients manage.
“When rates do eventually start to drop later this year, it may mean clients need to increase their exposure to other asset classes, including equities, to stay on track with their plans.
“Advisers need to consider the full range of options to help bridge this solution, to make sure that clients’ strategies are fully suitable. For example, for clients who may benefit from increased equity exposure but who are volatility-averse, a good option may be using a With Profits fund. This helps manage the ups and downs of the market through a ‘smoothing’ mechanism.”
Laura Suter, director of personal finance at AJ Bell, comments: “No-one was expecting the Bank of England to pull the trigger on interest rate cuts today – and the ratesetters stuck to the playbook. But what’s of more interest is the detail on the rate decision – the fact that two members voted for a rate cut compared to one last time represents a slight shift in attitude. It means we’re one step closer to the target of interest rate cuts, even if it might be months before it comes.
“It’s no surprise that the MPC references the US and the path to interest rate cuts over the pond in its commentary. There has been a lot of focus on which of the Fed, the ECB and the BoE will move first on rates – and the UK’s ratesetting committee appear keenly focused on the fact that the Fed has effectively ruled itself out of being first past that finish line.
“But as more months pass there is an increasingly low chance of any sizeable cuts to interest rates in the UK this year. The Bank is now modelling that rates will still be 5.2% in the second quarter of the year, up from the forecast of 5% it made in February this year. Equally, rates are expected to still be at 4.5% in the second quarter of next year, compared to the 3.7% that was being forecast in February. It feels almost absurd that at the start of the year markets were pricing in a cut to around 4.5% by the end of the year and that the first cut would be at today’s meeting. Now that timeline for the first rate cut has been pushed out to June, August or even September and there is a very low chance that we’ll see more than a few cuts in 2024.
“The real impact of this delay will be felt by homeowners, who will have to endure higher rates for longer. It means more people will come off their cheap mortgage deals and onto higher interest rates before Base Rate is cut. It also means that those people who gambled on a tracker deal at the start of the year, in the hope of imminent rate cuts, will have to pay their mortgage on higher rates for longer.
“And even if we do see a 25 basis point cut to rates from next month, that’s not going to make a huge difference to homeowners’ monthly costs. Someone with £400,000 of mortgage borrowing over 25 years would save around £60 a month if they saw their mortgage rate cut by a quarter of a percent – a helping hand but not a huge saving. At £250,000 of borrowing over 25 years that 25 basis point cut equates to around £35 a month in savings – the same as a family takeaway.
“Rishi Sunak and Jeremy Hunt will also feel the impact of this delay – with a general election looming they were likely hoping for a more positive story to tell about individuals’ finances. While inflation may have dropped to at or near target by the time any election is announced, people’s mortgages will still be sky high – which is an issue that they will remember at the ballot box.”
Abhi Chatterjee, Chief Investment Strategist at Dynamic Planner said: “It does not come as a surprise to any market participant that the Bank of England has held the interest rates at 5.25%. What does come as a surprise is that there was a split in the vote with two members voting in favour of rate cuts. According to the MPC, growth is expected to return to the UK – if figures of 0.4% in Q1 and 0.2% in Q2 can be considered to be growth – but demand is expected to be weaker than supply, with unwinding of higher energy costs to help temper inflation.
“Reading the comments, one understands the reasoning behind the split vote. This will no doubt fuel expectations of rate cuts in the upcoming meetings, driving yields down and creating exuberant equity markets – to further bolster the “feel good” factor in the economy. However, it would be prudent on the part of the Bank of England to carefully consider the next steps, as the conditions which caused inflation to be stickier than expected have not changed. The agglomerated effects of the macro environment could weigh heavily on the interest rate decisions. While it is desirable to have lower interest rates to fuel growth, the unintended consequences of a hasty decision could possibly make us careful as to what we wish for.”
James Lynch, fixed income investment manager at Aegon Asset Management: ‘The Bank of England once again has kept interest rate on hold at 5.25%. However the meeting was not without its surprises. The first was that the vote this time was 7 for unchanged and 2 voted to cut policy to 5%, this was a slight surprise that another member (Dave Ramsden) joined Swati Dhingra for voting for the cut.
‘The second surprise was that Governor Andrew Bailey decided to say that they may need to cut interest rates more than the market suggests, this comment was pre-empted not a response to a question.
‘Main reason for this dovishness from the MPC is that inflation in the UK over their forecast horizon will be lower than the target and inflation persistence is falling. They predict CPI at 1.6% in 2027 versus 2% target.
‘Bailey acknowledged that the markets view of UK interest rates have been recently dominated by the US market moves, and that the US moves have occurred due to the US inflation data being stronger which is different to the UK inflation dynamics. The US inflation is more ‘demand’ than the UK.
‘This is a more dovish meeting than most expected and it leaves a June cut very much on the table, the market is around 50% for a 25bps cut at that meeting. Between now and the 20th June meeting there will be two rounds of inflation and employment data to get through and it appears if the outturn of the data is in line with their expectations then we could see the first cut to interest rates in June. So far not much change at all by the market on the future path of interest rates.’
Chris Scicluna, Head of Research at Daiwa Capital Markets Europe said: “While the Bank of England is moving closer to a rate cut, it doesn’t yet have quite enough confidence in the outlook to act. Recent economic data have been encouraging and the MPC’s updated projections suggest that the fight against persistent price pressures is close to being won. Indeed, in normal circumstances, its inflation forecast would have prompted a rate cut today. But while they are moving in the right direction, wage growth and services inflation remain too high for the comfort of most members of the MPC.
There also remains some lingering uncertainty about the impact of geopolitical developments. So, while it is well aware that its policy stance is restrictive, the Bank of England is not yet willing to ease its foot off the economy’s brakes. Nevertheless, the Governor recognises that the risks of inflation persistence in the UK are lower than in the US, and so the BoE will be ready to cut rates before the Fed. Indeed, the MPC’s updated projections suggest that the evidence required should be available in time to bring a first rate cut next month.”
Luke Bartholomew, senior economist, abrdn, said: “No surprise in the Bank of England’s decision to keep interest rates on hold, but the composition of votes is interesting. The extra vote for a rate cut is likely to see investors increasingly speculating about the possibility of the first-rate cut happening in June as more of the Committee become convinced of the need to ease policy.
“However, that decision will be highly data dependent, with the next employment report especially important as policy makers will be looking for a slowing in wage growth to confirm that the risks of inflation persistence are indeed receding. With the US Federal Reserve likely to set to rates elevated for longer than the UK (and the rest of Europe) dollar strength is likely to remain an important theme, and probably constrains how much the BoE can cut this year without putting significant downward pressure on the pound.”
Tom Hopkins, Senior Portfolio Manager at BRI Wealth Management, said: “As widely expected, the Bank of England have held interest rates at current levels of 5.25%. This outcome was priced in as a 95% chance earlier today.
‘’The nine members of the Monetary Policy Committee were split, with seven voting to hold rates and two voting to cut. This means that UK interest rates will remain at their 16-year high, a rate which has been in place since August 2023.
‘’Inflation in the UK continues to trend closer to the 2% target with the March reading printing 3.2%, If inflation continues to trend downward, optimism of a rate cut over the summer will grow. ’’
Ben Nichols, Interim Managing Director at RAW Capital Partners, said: “Cuts are coming, perhaps sooner than some might anticipate, but until there is certainty that inflation is not going to rise again the Bank of England will remain steadfast in holding the base rate where it is.
“That the base rate has remained static for nine months has afforded homebuyers and investors a degree of certainty. But higher borrowing costs will continue to squeeze house prices, and this will naturally weigh on the minds of both buyers and sellers. Moreover, it places the emphasis on how lenders and brokers can best support borrowers in this higher-rate environment.
“Flexible financial products, firm commitments, and transparent communication are all vital qualities that brokers and their clients need when looking to leverage opportunities as the economic horizon brightens. For lenders, therefore, meeting these commitments will help foster confidence among investors in the UK property market.”
Paresh Raja, CEO of Market Financial Solutions, said: “We’ve known for some time that the Bank of England would not be cutting rates today. For the past two months or so, the question has been whether the first cut will come in June or August, and then how many cuts will there be by the end of 2024.
“When the base rate falls, and how quickly, remains to be seen. But the bigger picture is that the property market has slowly but surely gone through a period of adjustment over the past two months – the reality has sunk in that rates will not get back to the low levels many borrowers had become accustomed to throughout the 2010s.
“A base rate above 4% is highly likely for the next 12 to 18 months, and the sense of inertia is steadily fading away as buyers and investors decide to re-enter the market. So, now is the time for lenders to be flexible and embrace a ‘can-do’ attitude, ensuring the right products are available to brokers and their clients in a timely manner, allowing fresh life to be breathed into the market.”
Mark Taheny, Managing Director at corporate finance advisor Centrus, commented: “Though the general expectation is that rate cuts will materialise later in the year, the decision to hold them for the sixth consecutive meeting shows that there’s still factors causing a degree of uncertainty.
“While inflation is heading steadily towards the 2% target, sticky elements such as stagnating services inflation and wider geopolitical tensions will be weighing on the Bank of England’s mind. Though energy prices appear to have plateaued, businesses will be aware that the potential impact of global events could see prices soar and lead to a spike in inflation which could influence the decision of policy makers in their efforts to lower interest rates.
“Despite a more positive outlook for the remainder of the year, having a robust hedging strategy in place should still be a key consideration for businesses to mitigate the impact of any sudden changes.”
Jonny Black, Chief Commercial & Strategy Officer at abrdn adviser, said: “The Bank’s decision today dashes hopes that May would see the start of rates unwinding.
“Caution is the MPC’s byword. It won’t be rushed into what it might view as a hasty decision if it still thinks inflationary pressures are too high and there’s a risk of price rises accelerating again. One factor that might currently be giving it pause for thought is the recent National Living Wage rise. Ratesetters will want to make sure that the impact of this is known before moving ahead with a reduction.
“Advisers have a critical role to play in helping clients make sense of the wider economic context that the Bank is operating in, and to help reassure them that their strategies are prepared to keep delivering good outcomes when rates do eventually start coming down.”
Matthew Kimber, CEO of Molo says: “Despite recent pressure on sterling and volatility in the swap markets, the Bank of England (BoE) has maintained interest rates at 5.25% for the sixth consecutive time, in line with market expectations. Looking forward, we believe a first-rate cut will potentially occur in August, which will provide some relief for mortgage holders as we head into the Autumn.
“The BoE’s decision reflects a cautious approach to balancing economic stability and inflationary pressures. For borrowers, stable rates at least offer financial planning stability, allowing landlords to benefit from predictable costs, aiding financial management and promoting stability in the rental market”
Lindsay James, investment strategist at Quilter Investors: “High interest rates are helping to bring down inflation, but more evidence is needed that this is a sustainable shift before rates can be cut. That is at least the message emanating from the Bank of England following its decision to keep interest rates at 5.25% for the sixth time this hiking cycle, but it may soon begin a process of gradual rate cuts. It has been a long and painful period for businesses and consumers, but it appears inflation is now close to being under control, and less likely to spike given energy prices are well off their highs and storage levels remain robust after a mild winter. Focus can thus turn to supporting economic growth at a time when the UK economy is struggling to escape the orbit of a growth rate that is effectively zero.
“While this feels significant, it is important not to get ahead of ourselves. Markets have been a little giddy in recent quarters about the prospect of interest rate cuts, but that has since faded. While markets have begun to price in rate cuts beginning by the end of the September meeting, the floodgates won’t simply just open. Central Banks have a tendency to be fairly conservative in the way they act and thus market expectations for just two rate cuts by year end look reasonable. As a result, any hope from the Government that these cuts will help sway the election may be misplaced as the impact will take a while to feed through properly.
“Furthermore, while the prospect of lower interest rates has so far done very little for consumers or businesses in 2024. Long term gilt yields, which form the basis of mortgage rates and long-term debt agreements, have risen around 60bps as markets have priced in higher for longer interest rates in the US, with markets sceptical that the Bank of England can diverge significantly from the script that the Federal Reserve are following without triggering a sharp drop in the value of sterling, and with it a further inflationary pulse. Slow and steady will be the order of the day when the time comes for the Bank of England to start cutting.”
Douglas Grant, Group CEO of Manx Financial Group, said: “Today’s decision to maintain interest rates at the same level will reassure some businesses and consumers but frustrate others. The path however is set for rates to come down and small and medium-sized enterprises (SMEs) should seize this opportunity to reevaluate their current lending arrangements and strengthen their positions.
“Research conducted by Manx Financial Group reveals a significant shift in the financial landscape for SMEs. In contrast to the previous survey, where only 25% faced challenges, the current findings indicate that two out of five SMEs are now grappling with operational slowdowns or halts due to a lack of external financing. The survey also underscores that 15% of SMEs seeking external finance or capital are unable to secure the necessary funds. This financial constraint, coupled with a potentially unprecedented and volatile environment marked by ongoing conflicts, multiple elections, a tightening labour market, and persistent cost-of-living challenges, poses obstacles to the prospects of SMEs and national economic growth.
“The current government has demonstrated the effective implementation of short-term loan schemes, and we advocate for the next government and Treasury to continue this focus. Prioritising the establishment of a permanent government-backed loan scheme, tailored to resilient sectors and involving both traditional and non-traditional lenders, could be instrumental. Such a permanent scheme has the potential to play a pivotal role in unlocking economic resurgence for numerous companies, thereby sustaining the overall economy—especially as early 2024 UK business performance looks shaky.”
Colleen McHugh, Chief Investment Officer of Wealthify, comments: “Today’s decision to maintain the base rate at 5.25% came as no surprise to the markets, yet the certainty of a summer rate cut remains in question. In the lead up to today’s decision, Governor Bailey’s optimism – where he drew a clear distinction between the US and UK inflation outlooks – certainly suggested the Bank of England may be happy with policy divergences and entertain the idea of a potential rate cut by the summer.
“However, the question remains: is a summer cut a foregone conclusion? Despite service inflation persisting at 6%, primarily driven by wage growth, the rate at which this inflation will dissipate remains uncertain, particularly with tight labour markets. Market expectations imply a base rate of just under 5% by year-end, and today’s decision hasn’t altered pricing. Like all central banks, the Bank of England’s decisions hinge on data and are subject to constant flux, and there is no shortage of this currently!”
Ed Monk, Associate Director at Fidelity International, comments on the Bank of England’s latest interest rate decision: “Another MPC member willing to join the doves and call for a cut is a gentle signal that things are still heading in the right direction – albeit more slowly than markets and households might want. The last leg of problem inflation looks like it will be the hardest to shift and the majority view at the Bank is clearly still that inflationary pressures need to fall back further.
“In reminding that that policy must ‘remain restrictive for sufficiently long’ the Bank does not appear to be signalling an imminent rate cut – June now looks optimistically early. There will have to be a shift in language as the summer progresses if the first rate cut is to come through before the Autumn.
“Markets more widely have had to get used to rates falling less quickly than they expected at the start of the year. That may be a frustration for some but it’s worth remembering that inflationary pressures can be positives in an economy if they are accompanied by better growth and real-terms wage rises. Slower cuts to interest rates could be a signal of a more robust economy and lead to more sustainable and broad-based returns from investment assets.”
Dr Emily Evans, Political Consultant for the Economy and Financial Services at Dods Political Intelligence: “As anticipated, the Monetary Policy Committee chose to maintain the Bank Rate at its 16-year high of 5.25 percent for the sixth time in a row. However, there is now division amongst the members with Dave Ramsden joining Swati Dhingra in pushing for a cut to 5 percent.
“When the Committee first began to hike rates in December 2021, there was general unanimity over the course of action, with any dissenters tending to push for higher rate rises. Yet since Dhingra’s first vote in September 2022, she has been a consistent dovish voice. Her February 2024 vote to cut to 5 percent was the first time a member voted for a cut, rather than to maintain or increase, since the beginning of the cost-of-living crisis.
“This meeting also marks the first softening in the Bank of England’s rhetoric since the crisis began. Where previously the Governor, Andrew Bailey, has been firm in his management of expectations and insisted that rates will stay high for as long as it takes to get inflation back to the 2 percent target, this monetary policy report highlighted the fact that restrictive monetary policy “is weighing on activity in the real economy”. With CPI down to 3.2 percent in the 12 months to March 2024, and the next inflation statistics, due on 22 May 2024, expected to show a further decrease, the Committee is preparing for a thaw. If tomorrow’s Q1 GDP statistics show more troubling news for UK economic growth, that may speed up action to cut rates.”
Nicholas Hyett, Investment Manager at Wealth Club, commented: “The Bank of England continues to diagnose persistent inflation as the major danger facing the UK economy. However, it’s an increasingly delicate balancing act, and there’s a real risk the economic cure might end up being worse than the disease.
“To be fair the picture is murky. The market expects Friday’s GDP data to show the UK returned to growth in the first quarter, ending last year’s short-lived recession. But a 12% cut in the energy price cap will probably drag inflation back below the bank’s 2% target this month – at least temporarily. The former suggests interest rates are just fine where they are, the second that rates could do with a trim.
“The result is a natural inclination to sit on the fence a little longer, especially since cutting too early risks sinking sterling and kick starting another bout of inflation. Leave interest rate cuts too late though, and the Bank risks accidently cratering the economy in its eagerness to get inflation under control. The MPC’s two dissenters clearly think that risk is growing.”
