MPC HOLDS BASE RATE UNCHANGED

While inflation remains well above the Bank of England’s 2% target for the Consumer Prices Index, the MPC has been resisting further hikes to the official Bank Rate for a number of reasons.

First, there is high confidence that CPI will fall in the coming weeks and months. Food price inflation has dropped to its lowest level for 15 months, and the next inflation data from ONS will include the effects of a lower energy price cap, which came into force in October. Consequently, the CPI measure of inflation is expected to be around 1% lower when the MPC makes its next announcement on 13th November.

Second, there are growing signs that higher borrowing costs are hurting the UK economy. Growth in GDP is very weak, unemployment is rising, business investment is down, and more companies are facing challenges with cashflow and insolvency. A higher base rate would only exacerbate those problems, so while a further hike is not out of the question, it is becoming increasingly unlikely.

That certainly sems to be the view of most mortgage lenders who, faced with improving swap-rates, look to be more confident about the market’s longer-term prospects. Consequently, recent months have seen the launch of increasingly competitive deals and those, in turn, have been helping to improve market sentiment.

The decision to keep the official Bank Rate at 5.25% is unlikely to prompt any dramatic change in the market. However, it is consistent with market expectations, and those point to a slow return to growth in terms of both sales activity and capital values.

External Links:

Minutes of the latest MPC meeting

Calendar of forthcoming ONS release dates for CPI data

Calendar of Monetary Policy Committee dates for 2023 and 2024

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