The MPC continues to hold the Bank of England UK interest rate at 5.25%: industry professionals react

by | May 9, 2024

At their meeting earlier today, the Bank of England’s Monetary Policy Committee (MPC) has decided to hold UK base rates at the current level of 5.25%.

Despite some anticipation after the previous announcement, that rates may be cut at this MPC meeting, it was not to be. Although the MPC did not cut rates this time, experts across the industry still believe the Bank of England (BoE) will reduce rates ahead of the Fed.

Earlier in the week the FTSE continued its spring rally, breaking records as it has been doing in previous weeks. It will be interesting to see how this hold announcement will affect things in the coming days.

The split of votes was 7-2 in favour of maintaining rates at their current level. Could this further support the belief that rate cuts are on the horizon – it will be a hard one to predict.

The MPC announcement will likely be widely scrutinised for clues as to when rates are likely to be dropped and industry experts have been sharing their reaction to today’s Bank of England interest rate news:

Jonny Black, Chief Commercial & Strategy Officer at abrdn adviser, said:

“The Bank’s decision today dashes hopes that May would see the start of rates unwinding. Caution is the MPC’s byword. It won’t be rushed into what it might view as a hasty decision if it still thinks inflationary pressures are too high and there’s a risk of price rises accelerating again. One factor that might currently be giving it pause for thought is the recent National Living Wage rise. Ratesetters will want to make sure that the impact of this is known before moving ahead with a reduction.  

“Advisers have a critical role to play in helping clients make sense of the wider economic context that the Bank is operating in, and to help reassure them that their strategies are prepared to keep delivering good outcomes when rates do eventually start coming down.” 

Daniel Austin, CEO and co-founder at ASK Partners, said:

“Holding steady at 5.25 per cent as expected is welcome news from the Bank of England for many in the real estate investment market as the UK property sector remains in recovery mode and is starting to adjust to the “new normal” rate environment.  We’re now starting to see a gap in monetary policy develop in Europe with the Swedish central bank deciding to cut for the first time in eight years yesterday.

“For those currently looking to invest in commercial and residential real estate without the hassle of ownership, alternative avenues such as property debt investment, which can provide higher returns and also access to liquidity via a secondary market, are becoming more popular.”

Nicholas Hyett, Investment Manager at Wealth Club, said;

“The Bank of England continues to diagnose persistent inflation as the major danger facing the UK economy. However, it’s an increasingly delicate balancing act, and there’s a real risk the economic cure might end up being worse than the disease.

The picture is murky. The market expects Friday’s GDP data to show the UK returned to growth in the first quarter, ending last year’s short-lived recession. But a 12% cut in the energy price cap will probably drag inflation back below the bank’s 2% target this month – at least temporarily. The former suggests interest rates are just fine where they are, the second that rates could do with a trim.

The result is a natural inclination to sit on the fence a little longer, especially since cutting too early risks sinking sterling and kickstarting another bout of inflation. Leave interest rate cuts too late though, and the Bank risks accidently cratering the economy in its eagerness to get inflation under control. The MPC’s two dissenters clearly think that risk is growing.”

Mark Taheny, Managing Director at corporate finance advisor Centrus, said:

“Though the general expectation is that rate cuts will materialise later in the year, the decision to hold them for the sixth consecutive meeting shows that there’s still factors causing a degree of uncertainty.

“While inflation is heading steadily towards the 2% target, sticky elements such as stagnating services inflation and wider geopolitical tensions will be weighing on the Bank of England’s mind. Though energy prices appear to have plateaued, businesses will be aware that the potential impact of global events could see prices soar and lead to a spike in inflation which could influence the decision of policy makers in their efforts to lower interest rates.

“Despite a more positive outlook for the remainder of the year, having a robust hedging strategy in place should still be a key consideration for businesses to mitigate the impact of any sudden changes.”

Lindsay James, investment strategist at Quilter Investors, said:

“High interest rates are helping to bring down inflation, but more evidence is needed that this is a sustainable shift before rates can be cut. That is at least the message emanating from the Bank of England following its decision to keep interest rates at 5.25% for the sixth time this hiking cycle, but it may soon begin a process of gradual rate cuts. It has been a long and painful period for businesses and consumers, but it appears inflation is now close to being under control, and less likely to spike given energy prices are well off their highs and storage levels remain robust after a mild winter. Focus can thus turn to supporting economic growth at a time when the UK economy is struggling to escape the orbit of a growth rate that is effectively zero.

“While this feels significant, it is important not to get ahead of ourselves. Markets have been a little giddy in recent quarters about the prospect of interest rate cuts, but that has since faded. While markets have begun to price in rate cuts beginning by the end of the September meeting, the floodgates won’t simply just open. Central Banks have a tendency to be fairly conservative in the way they act and thus market expectations for just two rate cuts by year end look reasonable. As a result, any hope from the Government that these cuts will help sway the election may be misplaced as the impact will take a while to feed through properly.

“Furthermore, while the prospect of lower interest rates has so far done very little for consumers or businesses in 2024. Long term gilt yields, which form the basis of mortgage rates and long-term debt agreements, have risen around 60bps as markets have priced in higher for longer interest rates in the US, with markets sceptical that the Bank of England can diverge significantly from the script that the Federal Reserve are following without triggering a sharp drop in the value of sterling, and with it a further inflationary pulse. Slow and steady will be the order of the day when the time comes for the Bank of England to start cutting.”

Douglas Grant, Group CEO of Manx Financial Group, said:

“Today’s decision to maintain interest rates at the same level will reassure some businesses and consumers but frustrate others. The path however is set for rates to come down and small and medium-sized enterprises (SMEs) should seize this opportunity to reevaluate their current lending arrangements and strengthen their positions.

“Research conducted by Manx Financial Group reveals a significant shift in the financial landscape for SMEs. In contrast to the previous survey, where only 25% faced challenges, the current findings indicate that two out of five SMEs are now grappling with operational slowdowns or halts due to a lack of external financing. The survey also underscores that 15% of SMEs seeking external finance or capital are unable to secure the necessary funds. This financial constraint, coupled with a potentially unprecedented and volatile environment marked by ongoing conflicts, multiple elections, a tightening labour market, and persistent cost-of-living challenges, poses obstacles to the prospects of SMEs and national economic growth.

“The current government has demonstrated the effective implementation of short-term loan schemes, and we advocate for the next government and Treasury to continue this focus. Prioritising the establishment of a permanent government-backed loan scheme, tailored to resilient sectors and involving both traditional and non-traditional lenders, could be instrumental. Such a permanent scheme has the potential to play a pivotal role in unlocking economic resurgence for numerous companies, thereby sustaining the overall economy—especially as early 2024 UK business performance looks shaky.”

Tom Hopkins, Senior Portfolio Manager at BRI Wealth Management, said:

“As widely expected, the Bank of England have held interest rates at current levels of 5.25%. This outcome was priced in as a 95% chance earlier today.

‘’The nine members of the Monetary Policy Committee were split, with seven voting to hold rates and two voting to cut. This means that UK interest rates will remain at their 16-year high, a rate which has been in place since August 2023.

‘’Inflation in the UK continues to trend closer to the 2% target with the March reading printing 3.2%, If inflation continues to trend downward, optimism of a rate cut over the summer will grow. ’’

Related articles

Trending stories

Join our mailing list

Subscribe to our mailing list to receive regular updates!

x