Reaction to the BoE rate decision: “A reprieve at the eleventh hour”


The Bank of England (BoE) holding the base rate at 0.10% today sparked a frenzy of commentary from market watchers – indeed, it came as a surprise.

The majority of commentators so far agree that the decision is a good thing for the mortgage industry.

“Despite growing pressures to tackle rising inflation, it’s encouraging to see today’s decision not to raise the base rate,” said Kevin Roberts, director of the Legal & General Mortgage Club.

“As part of the reduction in government support, helping to keep borrowing costs to a minimum will support people across the UK by ensuring their mortgage and credit payments remain at historic lows,” he said. he declared.

And Habito CFO Martijn van der Heijden describes the BoE announcement as an “eleventh-hour reprieve.”

He warns: “But this may not last long. The next decision meeting of the Monetary Policy Committee (MPC) will take place in December – an already costly month for households… it is always a question of “when” and not “if” a rise occurs.

“If we see inflation rates continuing to rise rapidly, it increases the risk that the bank will have to act more aggressively in future votes to get inflation under control quickly.”

LMS Managing Director Nick Chadbourne reflects on what this means for mortgage product rates which have already been increased in recent weeks. “Many expected the rate to be raised today and we have already seen several lenders raise their prices in anticipation of that,” he says.

“Despite the rate holding, the precedent of lenders raising product rates has been set and will likely continue for the rest of the year, and the base rate will not stay at 0.1% forever.”

Although the majority of mortgages are fixed rate, Richard Pike, Director of Sales and Marketing at Phoebus Software, says, “There are still a lot of people with variable rate mortgages who should prepare for the first interest rate hike in three years.

“A small rise to 0.25%, predicted by many, might not be huge, but it’s probably the start of things to come. As the BoE tries to bring inflation in line with government, it is inevitable that the current position of the MPC will have to change. It is just a matter of time.”

Ivan Petrella, professor of economic policy and forecasting at Warwick Business School, moves away from mortgages to take a broader economic view.

“Inflation has been rising over the past few months and it is clearly heading upwards, but looking beyond the aggregate numbers, you can see that most of the recent price rise reflects supply shortages and global bottlenecks.”

He continues: “This is classic ‘cost-push’ inflation that will squeeze spending, especially for low-income people who are more exposed to rising fuel and energy prices. As price pressures are temporary and economic data is already showing a slowdown in global activity, not raising interest rates at this time is clearly a wise move on the part of the BoE.

Giles Coghlan, Chief Currency Analyst at HYCM, comments: “There is a logic to this. Inflation may be on the rise, but the BoE is right not to see an interest rate hike as a silver bullet to this problem.

“Labour data is crucial, and in deciding to postpone the rate hike, the MPC is likely waiting for more employment data to become available after the furlough scheme ends.”

And in a Tweet sent earlier today, former MPC member Andrew Sentance posted: “[The] press conference reveals very clearly that the bank’s current management team has no idea how to deal with the current surge in inflation. The British public should be very concerned about this.

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