The Bank of England has announced that interest rates are to remain unchanged at 5.75 per cent.
The BoE was widely expected to maintain the current rate after raising it from 5.5 per cent last month.
Savills Private Finance says the decision is a correct one and the BoE needs to maintain a “wait and see” attitude as to whether the recent rises have had the desired effect.
SPF director Melanie Bien says: “With five interest-rate rises in the past 12 months, it is time for the Bank of England to ‘wait and see’ whether this aggressive round of tightening has filtered through. August’s inflation report will be a key component in the decision-making process: if this shows that inflation isn’t being pegged back towards the magic 2 per cent target, the MPC is likely to feel that rates need to rise by a quarter-point in September.
‘However, indicators suggest that the housing market is slowing. Approval numbers for house purchases are down on this time last year, suggesting that market demand is reacting to higher mortgage costs. And as borrowers come to the end of cheap two-year fixed mortgages, they are going to be hit hard by higher borrowing costs.”
C&G head of corporate and specialist lending Mark Blackwell says: “After two interest rate rises in three months, the MPC was in danger of doing too much without allowing time to assess the effect of the earlier increases. With around two million people likely to have to re-fix their mortgages at higher current rates, the economic impact could be quite large and negative.
Moreover, there are some signs that the impact of earlier increases are beginning to hit retail sales, credit borrowing and the housing market. But it is still early days in the interest rate cycle, and the MPC has decided to keep rates unchanged in August while new data is released and it assesses what it means for the inflation target. This situation of ‘wait and see’ should persist for some months.”