Base Rate on Hold - what it means for mortgages

The Bank of England has held base rate at 5.25 per cent, with most analysts saying this is likely to be the peak.

Inflation is expected to start dropping again when the October figures are published but rate cuts are unlikely until at least the middle of next year, and even then are expected to be very gradual.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, says: “The Bank of England is singing the same tune as the Federal Reserve and has stayed firmly in the ‘wait and see’ chorus, cautious that the full impact of interest rates hikes has yet to be felt. The decision to press pause, and hold rates at 5.25 per cent, was widely expected, so caused no major market movements initially. 

“The FTSE 100 has remained deep in positive territory, while the pound shifted slightly higher against the dollar, building on gains made since yesterday, though sterling is still largely hovering around lows not seen since March.”

She says that although this wasn’t a unanimous vote by the Bank of England’s monetary policy committee, there is a growing strength of feeling that previous rate hikes need more time to feed through. 

There are deepening concerns in the BoE about the faltering economy as the high borrowing costs batter financial resilience and policymakers paint a stark picture of a stagnation scenario lasting until 2025. The minutes highlight that UK GDP is expected to have been flat in the third quarter, weaker than initial estimates. The economy only just eked out growth in August and there has been a surge in company insolvencies.

Although inflation was still more than three times the bank’s target, it’s expected to have taken another big step down in October, and private sector wage growth is also showing signs of easing. 

Streeter says it’s far from surprising that the majority of policymakers want the economy to take a breather from this painful cycle of rate hikes. The potential for oil prices to shoot higher remains a worry, but not a major concern right now. So, barring further shocks, it looks highly likely we have hit the peak in the cycle, but cuts are still not expected until the second half of next year.

Her colleagues Sarah Coles - head of personal finance at Hargreaves Lansdown - adds: “After wrestling with runaway rate rises for almost two years, this is a welcome pause for breath, at what is now expected to be the peak for rates. The pause was widely predicted and has been priced in, so we’re not expecting any big rate movements for either savings or debts.

“Tracker mortgages will naturally hold steady because they move with the base rate. Fixed rate mortgages, meanwhile, could drop very slightly. They have already fallen from a recent peak in August, because fixed rates are mainly driven by expectations, and over the past few months, more market players became convinced this was the peak for rates. If this pause persuades more of them there are no more rises on the cards, fixed rates could fall a little further. However, we’re not expecting any big moves from here until the market starts to expect a forthcoming rate cut – which will be months down the track.”