There are some clear signals that cuts are coming and not a moment too soon. (Image: James Manning/PA Wire)
The Monetary Police Committee voted to hold rates at a 16-year high even though inflation fell to just 3.2% in March.
Two members of the MPC voted for a cut and governor Andrew Bailey did say he was prepared to lower rates before the US Federal Reserve if conditions allowed.
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But the failure to cut was criticised by Julian Jessop of the Institute of Economic Affairs who said: “Even the Bank’s own forecasts now show there is no need to keep rates this high to get inflation back to 2%.
“There are some clear signals that cuts are coming and not a moment too soon.
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“The longer the Bank waits, the greater the risks of a prolonged recession, or a lurch into harmful deflation.”
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The move means the mortgage payments of 868,000 homeowners will jump by around ￡240 a month between now and November -when a general election is likely.
-Financial Conduct Authority analysis shows that an average of 4,200 households a day are coming off fixed-rate deals and being forced to remortgage with higher payments.
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Around 1.6 million fixed-rate mortgages will end during 2024, the trade association UK Finance said.
Kate Steere, housing expert at personal finance comparison site finder.com said: “This will no doubt be a huge blow to borrowers who were hoping for some relief for their mortgage payments, with many big lenders increasing their rates in recent weeks.”
Figures released by Moneyfacts showed the average two-year fixed-rate homeowner mortgage on the market is 5.93%. The average five-year fix is 5.51%.
The decision did represent a bonus for savers who are still able to get one-year fixed-rate deals on cash deposits of around 5%.
The savings deals were not expected to be on offer for much longer as expert consensus was that interest rates would start to fall in the autumn if not before.
Mark Hicks, head of active savings at Hargreaves Lansdown said: “For savers, there are still multiple rates across easy access savings and Isas, and fixed-term products, which pay over 5%.
“However, banks have been slowly reducing the rates on offer in easy-access space, as they start to prepare for a base rate cut later this year.”
Two members of the MPC voted for a cut in rates this time meaning only three more votes would carry the day.
Matt Smith, Rightmove’s mortgage expert said: “The market is still assuming that the first base rate cut will happen in the summer, and yesterday’s) decision is unlikely to change that view.
“All eyes now turn to the publication of April’s inflation data, which is the next key milestone and is likely to determine the immediate direction of mortgage rates in the UK.”
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Sarah Coles, Head of personal Finance at Hargreaves Lansdowne said: “The Bank of England will be watching inflation data like hawks in the coming weeks.
“They will be keeping a close eye on wage inflation which is already easing while employment numbers are weakening and unemployment is showing signs of rising.
“The Bank of England also hinted that it might cut rates before the US so these are all signs that we could have lower interest rates in the autumn if not sooner.”
Governor Andrew Bailey signalled that he was prepared to cut rates sooner than the US Federal Reserve but that MPC would not bow to pressure from politicians as a general election approaches.
Mr Bailey said: “There is no law that the Fed has to go first. Moreover, we have a remit and a target that is related to domestic inflation in the UK.
He added that the Bank will always “take the rest of the world into consideration”, but only in regard to how it affects domestic inflation.
He added: “There’s no law which says we can only move after the Fed moves.”
James Smith, ING developed markets economist, said: “The Bank of England is getting very close to its first rate cut.
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“That much is clear from the latest policy statement which has a distinctly more optimistic flair.
“It echoes recent comments from Governor Andrew Bailey, who has been hammering home the message that the UK’s inflation outlook is quite different to the US.
“We’re still leaning slightly more towards an August start date for rate cuts, though it’s a close call.”
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