Brokers debate the Monetary Policy Committee's imminent decision
With inflation easing in the UK and America’s global trade war throwing everything up in the air economically it seems, speculation is rife about the Bank of England’s imminent decision on the base rate. The Monetary Policy Committee is due to meet tomorrow, with its all-important rate announcement at midday.
Inflation recently falling by more than expected to 2.6%, and President Donald Trump’s strident tariff announcements, have boosted hopes that the Bank may loosen its hold – reducing interest rates by a quarter of a point, to 4.25%. So, what does the UK’s broker community think is on the cards?
For Ben Perks (pictured left), managing director of Orchard Financial Advisers, a cut to the base rate of 0.25% or more would increase confidence and put pounds back into borrowers’ pockets. “It would have an almost immediate impact and provide such a positive boost to the wider economy,” Perks said. “A cut this week should give swap rates a further nudge in the right direction. This, in turn, allows lenders to price more competitively. Ultimately, over the next few months, we want to see more interest rates with a three at the beginning. This should happen if they make the Monetary Policy Committee opt to back British borrowers and reduce the base rate. If they chose not to reduce this week, they’ll have to provide a pretty convincing and impassioned reason to avoid a backlash.”
He continued: “A base rate cut would pour petrol on the otherwise smouldering UK property market. The industry has shown so much resilience over the last few years, especially recently amid the global economic uncertainty, but we are far from the buoyant conditions we’ve enjoyed in years gone by. Homeowners facing the end of their fixed rate are living in fear of the unknown, prospective buyers are waiting to see what happens, and brokers are desperate to start delivering good news again.”
Amar Dhanota (pictured second from left), co-founder and specialist adviser of London-FS, believes we will see a reduction in the base rate of at least 0.25%, but hopes for more. “I would like to see them go a bit further and reduce by 0.5%,” Dhanota said. “Lenders seem to be pricing this in already, with the majority of lenders continuously reducing rates. Given everything going on in the world, the UK need to do what’s necessary to try and avoid an economic downturn, as well as providing a lifeline to many people who are on variable rates, or coming to the end of their fixed rate mortgages.”
A base rate cut of 0.25% by the Bank of England is also anticipated by Steve Humphrey (pictured second from right), mortgage adviser and director of The Mortgage Pod. “Inflation is coming down nicely, and with the economy still a bit shaky, a small rate drop would be a welcome step in the right direction,” Humphrey observed. “For anyone thinking about buying a home, even a small cut like this could offer a bit of breathing room – especially with mortgage rates having felt quite high for a while now. We shouldn’t expect significant change overnight, but 0.25% is a move in a more positive direction for buyers. It’s not about rushing into anything, but a move like this could help build confidence and make things feel a little more achievable for people looking to get on – or move up – the property ladder."
Peter Tsouroulla (pictured right), head of mortgages at Trinity Lifetime Partners, believes current market trends suggest a rate cut. “From looking at the way the swaps market has reacted in the last few weeks, and subsequently high street lenders re-pricing downwards, it looks all but certain that the Bank of England will cut interest rates,” Tsouroulla said. “Whilst a base rate cut will trigger a lot of excitement, it’s those on variable rate or tracker mortgages who will enjoy the benefits, but clearly it will be well received by clients and brokers alike. From a broker point of view, it’s always to see who votes which way, and we all get giddy with excitement trying to work out what the next stage will be in this ongoing process. We have seen a number of economists make their predictions of a base rate around 3.75% by the end of the year or early next year, and whilst one must take predictions with a pinch of salt, you can understand the sentiment.”
Read more: 'Short-term fixed rates expose borrowers to astronomical stress'
The uncertainty over America’s trade war
Ben Groves (pictured above, inset), founder and managing director of Yomo, believes, though, that rates will stay as they are. “With the uncertainty of what is going on with America and the pending trade deal, the outcome will very much drive positive or negative movements so to change anything right now, I don’t believe, would be the right move,” Groves said. “I still think we are on for another decrease this year, but to decrease too soon may impact inflation which everyone has tried to get down for quite a while, so I’m not sure it’s worth that risk at the moment.”
A small decrease to 4.25% is envisaged by Matthew Roberts (pictured above, inset), director of brokerage YesCanDo Money, but he wouldn't be surprised if there is a 0.5% decrease to 4%. "I think the Bank of England should start easing rates now, even if it's just by 0.25%,” Roberts said. “A small cut would help boost confidence in the market and show people that things are moving in the right direction. With inflation settling, it feels like the right time to start supporting growth again."
Broker Serena Smith (pictured above, inset), from Mortgages with Serena, is keeping her fingers crossed, and not only for the benefit of her clients. “I’d love to think, and hope, as my own remortgage is fast approaching, that the rate will reduce to 4.25%,” Smith said. “Everything seems to be heading this way, positively.”
Meanwhile, Luther Yeates (pictured above, inset), head of mortgages at Orton Financial, questions the system behind the Bank of England’s decision-making. “If you attend any networking events for financial services in general, you struggle to find anyone who feels the Bank is cutting fast and far enough,” Yeates commented. “It begs the question whether the current system might no longer be fit for purpose in 2025, and if we should consider a different selection process for members of the MPC in the future. I feel they may be living in the insulated London bubble. Commercial lending is especially exposed to the base rate, with most lenders pricing at a margin over base. Small business is the backbone of the economy, but the current cost of finance is prohibitive to a growth-economy. There is talk of cuts up to 0.5%, but I would be surprised if they move beyond the go-to 0.25% variation.”
