Experts consider what the Monetary Policy Committee should do
As questions persist regarding the UK’s economy and Chancellor Rachel Reeves’ direction of travel, the bleak figures from the Office for National Statistics showing a second consecutive month of decline, has excited fresh speculation about what the Bank of England should do when its Monetary Policy Committee (MPC) meets again in August.
The Chancellor’s tears may have dried after her unexplained emotional moment in the House of Commons barely a couple of weeks ago, but real concern remains about whether Britain is on the right path in its attempt to overcome its financial turbulence. The big question, of course, whether the Bank should lower the base rate next month. It’s a delicate balancing act, and there are no easy answers. Opinion varies between whichever mortgage professional you speak with.
Broker Luther Yeates (pictured left), head of mortgages at Orton Financial, wants a base rate reduction – and he is critical of how the economy is being handled by the MPC. “The industry has been calling for change and it has fallen on deaf ears,” Yeates told Mortgage Introducer. “The housing market is already in recession, and it is about to drag the rest of the economy with it. We are all tired of their reactive, rather than pro-active measures. They should be the best of the best, leading the country. Instead, they have become hyper-focused on an unattainable inflation goal.
“If I was the governor of the Bank of England, I would take great pleasure in informing the government that the reason we are not on target with inflation is because our priority is stabilising and supporting growth in the economy. Inflationary pressures will subside or are less of a concern when you have growth.  Instead, they have both missed the target and sent the economy spiralling.
For Joela Jenvey (pictured centre), an independent mortgage and protection adviser at Nuture FS, the latest news that the UK economy has shrunk again puts the Bank of England in a tricky position – but she urges caution. “Inflation has come down a lot since last year, but prices in some areas like services and wages are still rising faster than we’d like,” Jenvey reflected. “At the same time, the economy isn’t growing, and many households are feeling the pressure from higher costs and mortgage payments.
“Some people think the Bank should make a bold move and cut interest rates to give the economy a boost. But doing that too quickly could risk pushing inflation back up. On the other hand, raising rates again now could make things even harder for people already struggling and slow the economy further. In my view, keeping the base rate at 4.25% for now is a sensible middle ground. It gives the Bank of England time to assess how things develop over the summer without making sudden changes that could further unsettle the market.”
With house prices going through a natural period of adjustment and buyer activity slowing due to the summer holidays, a period of rate stability could help rebuild confidence and keep things ticking over during this quieter phase, Jenvey suggests.
“Importantly, holding rates steady now could support a healthier autumn market,” she said. “Buyers and sellers are more likely to act if they sense stability in borrowing costs. Lenders, too, would have greater confidence to sharpen their pricing and compete for market share, especially as they prepare for renewed demand post-summer. That competition, paired with greater clarity on rates, could help stimulate activity just when the market traditionally picks back up.” She added: “The Bank doesn’t need to rush. Being steady and thoughtful right now could be the smartest option.”
READ MORE: Rachel Reeves' tears: Appropriate for a Chancellor?
A time for bold action?
Broker and director of Nest Mortgage Advice, Laura Jones (pictured right) wants more decisive action though. “With the economy shrinking again, it does feel like the Bank of England needs to start thinking more boldly,” she said. “High interest rates have done their job in bringing inflation down, but they’re also putting a real squeeze on households especially those with mortgages or hoping to buy their first home. Even a small cut could help ease the pressure and give people a bit more breathing room. It’s not just about numbers, it’s about confidence too. A move in August could show that the Bank is ready to support the economy as well as keep inflation on track.” She added: “Of course, they’ve been cautious for a reason, but if growth keeps stalling, a more decisive shift might be just what’s needed.”
Meanwhile, Richard Pike (pictured above, inset), chief sales and marketing officer at Phoebus, remains concerned about the UK economy’s lack of growth. “Another monthly contraction in GDP highlights just how fragile the UK’s economic recovery remains,” Pike said. “While not unexpected, given the broader slowdown in activity, it reinforces the view that momentum is stalling across the board. For the Bank of England, this adds further weight to the case for a rate cut, potentially as soon as August. Inflation is gradually easing, giving policymakers more room to act. However, any move is likely to be carefully measured. The Bank’s Financial Policy Committee (FPC) said on Wednesday that geopolitical tensions and trade disputes continue to pose risks to UK financial stability. With that in mind, the Bank will remain mindful of inflation risks and the potential impact of quantitative tightening, particularly in such a fragile growth environment.” He added: “In this climate, firms across the financial services sector will need to remain agile.”
