An interest rate cut could still be on the cards later this year after the Bank of England opted to freeze the current rate, a local expert has said.
The Bank voted to keep rates at 5%, citing persistent inflation.
The Monetary Policy Committee (MPC) voted by 8-1 to maintain the current Bank rate, having made a 0.25% cut at their last meeting in August.
That was the first reduction in interest rates in over four years, as the Bank has used higher rates as a method to reduce inflation.
The Consumer Prices Index (CPI) inflation was registered as 2.2% in August, which is above the target set by the Bank of England.
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The MPC say that their decisions on monetary policy “have been guided by the need to squeeze persistent inflationary pressures out of the system so as to return CPI inflation to the 2% target both in a timely manner and on a lasting basis”.
One of the nine members of the MPC favoured cutting the bank rate to 4.75%.
The high rates of inflation seen in the years since the pandemic caused central banks around the world to raise interest rates.
The Bank of England had set interest rates to under 1% for over 13 years up to May 2022, before raising them to try to encourage saving and therefore combat inflation.
Ross Boyd, the founder and director of Belfast-based chartered accountancy RBCA, said: “It’s not surprising that the MPC has voted to hold base rates at 5%.”
“While growth appears stagnant, inflation is still over the 2%, and it is much higher in some sectors such as services.
“The inflation picture is however downwards in a tightening economy, and it seems likely that a 0.25% reduction could be likely in November depending on events between now and then.
“All eyes are now on the Chancellor with the first Labour budget planned for October 30. The Government have been talking about fiscal black holes and increasing taxes but there is much to address, and many are uneasy.
“The growth conundrum needs unlocked, or at least a plan needs to be revealed as to how to unlock it, if the Government are to look credible. The MPC will want to react to this fiscal event in November, rather than be seen to lead it.”
The bank rate has a knock-on effect on the price of borrowing across the economy, and the era of higher interest rates has seen the price of mortgage repayments increase.
Mark Graham, chief executive of Co-Ownership, said that “a potential cut” is “anticipated later in the year.”
“Whilst rates are on their way down, we are never likely to return to the days of mortgages costing less than 2%.
“However, the previous cut from 5.25% to 5% in July has delivered a positive outcome in recent weeks with lender confidence growing and improved deals available as a result.
“It’s said that even just a 1% reduction in mortgage rates has the same impact on affordability as a 10% fall in house prices. The markets’ assumptions on Bank of England rates are already built into fixed term deals.
“We have seen a 1% fall in rates since this time last year on deals. This saves £100 per month on a £150,000 30-year mortgage.
“We know how important affordable housing is, and we understand the positive societal and economic impact homeownership can have, so it’s crucial that in the current mortgage market we continue to promote alternative and affordable routes into homeownership.”