It would not be surprising to ask a homeowner or a home buyer that has put off getting a remortgage or mortgaging for a property as to why and discover they are waiting on the Bank of England’s Monetary Policy Committee (MPC) to make the first rate cut since March 2020. Finally, the inflation rate reached the Bank’s set target of 2% last month, which was the report released in June concerning the state of inflation in May. With inflation at target, it would be expected the MPC would be nearing a decision to cut the standard base interest rate of 5.25%. Borrowers did not need to wait, for lenders were so optimistic a rate cut was nearing they began offering interest rate offers as if the MPC had already met, voted, and cut the base rate. Lenders might have been a bit too optimistic, and home buyers and homeowners might be putting off borrowing longer, because the expectation of a rate cut next month has lessened.

The inflation report came out yesterday, and in the hours that have passed since the release of the data, the hopes for a base rate cut on 1 August are fading. 

Inflation did not budge, it remained at 2.0% for June. The expectation for a decline in the services inflation to 5.1% failed to materialize as it remained at 5.7%. This and other specific sectors in inflation are a worrisome bit of information for the MPC. If they cut the rate, and do so too early, it could make inflation stick with us longer, and unknown global or domestic events could cause inflation to rise, and again it could linger for far longer than desired. Yet, there is always the solution of raising the base rate to tame inflation back to target, and no one wants that, especially home buyers or homeowners.

The MPC may simply need to play the waiting game themselves and allow the current base rate to keep doing its job and rein in all the outlaying parts of inflation to where target actually means inflation is on target and the economy is at a higher state of recovery.

Once inflation is indeed under control and no longer impacting food prices or energy prices and services and other sectors, it will take awhile for the relief to be felt by consumers. Which is more reason for the MPC to stay assertive and allow their past decisions to keep pulling inflation downward, even if it means another month or so of the base rate remaining steady.

For borrowers that have been waiting on the fence, there is good reason to shop now. Lenders, as mentioned, have been optimistic about a rate cut and to get a jump on the attention of borrowers, lowered their interest rate offers, and attractive lower cost interest rates have appeared on the lending market. It is as if the MPC already voted a rate cut. Therefore, borrowers have their pick of deals available now without needing to wait for a majority vote to cut the base rate.

The MPC meeting is on 1 August and the expectation for a vote to keep the rate steady is simply that, an expectation. The MPC could surprise with a small rate cut. However, experts believe the majority of members will vote to keep it steady, but perhaps there will be more members than simply two voting for a cut as in the previous meeting. For instance, if the vote is 5 to 4 of the nine members voting to keep the rate steady, it could signal the cut is nearing even if it does not happen in August.

If the same two members of the last meeting or fewer vote for a cut to the base rate, it might signal they intend to remain steadfast in bringing inflation under control and only an inflation rate strongly under target is acceptable to trigger a vote to change the 5.25% base rate to something lower. The silver lining in this scenario is that there could then be a second rate cut soon following the first if inflation does decline more.

The wait for the MPC to cut the standard base interest rate might be lengthened, but borrowers need not wait for their decision. Lower interest rates are available and new ones offered just this week.

Lenders are not likely to pull their best deals simply because the MPC might wait until September, but some might. This is all the more reason to shop for a deal now while offers are attractive.