The upcoming meeting of the Bank of England’s Monetary Policy Committee (MPC) in May holds significant importance as the committee contemplates the possibility of cutting the standard base interest rate. This meeting takes place after a brief hiatus, as the last gathering occurred in March, where the base rate was held at 4.5%. With no scheduled meeting for April, the May assembly is eagerly anticipated by market observers and borrowers alike.

The MPC plays a crucial role in setting the base interest rate, heavily influenced by inflationary trends. Inflation, an economic phenomenon marked by the rising prices of goods and services, is a key determinant in the MPC’s decision-making process. Historically, the committee has adjusted the base rate to manage inflation effectively and to maintain economic stability.

In October 2022, inflation soared to 11.1%, reaching a 40-year high. This unprecedented rise in inflation prompted the MPC to increase the base rate to a 16-year high of 5.25%. This move was meant to curb surging inflation by discouraging excessive spending and reducing consumer demand, which typically helps in bringing down inflation rates.

The MPC’s ultimate goal is to achieve the Bank of England's target inflation rate of 2.0%. As inflation rates approach this target, the committee is more likely to cut the base rate, providing relief to borrowers through reduced borrowing costs. Consequently, the MPC has enacted base rate cuts in the past when inflation trends showed positive signs. Last year, the committee cut the base rate twice due to inflation dipping near or below the target. In the current year, the rate has been cut once and is presently held at 4.5%.

Recent inflation reports provide a glimmer of hope for those anticipating a potential rate cut in May. The report for the twelve months leading up to March indicated a decline in inflation from 2.8% to 2.4%. This decline suggests that the MPC might consider another rate cut, aligning with their goal of maintaining stable inflation. However, projections indicate that inflation may rise to 3.7% between July and September due to higher costs in energy, water bills, and bus fares. These factors could delay achieving the target inflation rate until the end of 2027.

Borrowers hoping for lower interest rates may find solace in the fact that lenders could offer reduced borrowing rates regardless of the MPC’s decision to hold the base rate steady. The anticipation of a small cut in the base rate remains, but the MPC has cautioned that any reduction will be gradual and measured.

The May meeting of the MPC is pivotal, as it will reflect the committee’s approach to managing inflation and interest rates amidst evolving economic conditions. The decisions made will have far-reaching implications for borrowers and the broader economy. As the MPC navigates through the complexities of inflation and economic stability, stakeholders will keenly observe the outcomes and their impact on future financial decisions.

The next meeting of the MPC will be on 8 May. 

Borrowers are encouraged to shop current lender rates, especially homeowners seeking remortgages and home buyers shopping for mortgages. Recently mortgage lenders began to cut their rates, and some have fallen below the base rate of 4.5% to near 4.0% and below. 

The best effort for homeowners is to shop online for remortgages as it is fast and easy to get remortgage quotes. By gathering quotes, homeowners can determine when to choose a new deal, to save money or to secure a fixed rate to offer peace of mind. This is important for homeowners reaching the end of their mortgage term or for those that have had their term expire and have been transitioned to their lender’s standard variable rate (SVR). The opportunity to borrow now should be explored as it might be as good a time as any to secure a remortgage due to current low rates.