The Bank of England has voted to hold the base rate at 4% as inflationary pressures persist.
The Bank said it expected inflation to return to its key target of 2% but warns that any future cuts will need to be made “gradually and carefully”.
It follows the announcement that prices in the UK rose by 3.8% in the 12 months to August, pushed up by rising food prices, meaning inflation is still at a 19-month high and almost double the Bank of England’s target.
While mortgage affordability has improved recently, the housing market remains subdued and housing experts suggest with a less certain trajectory for future cuts, this will place further pressure on the mortgage market.
“The diminished prospect of cheaper borrowing rates this year feeds into the apprehension already felt by buyers and sellers,” says Nick Maud, director of research at Savills. “This has been driven in part by rife speculation on proposed changes to the property tax regime, so November’s Budget will be crucial in restoring some confidence to the housing market.”
Daniel Austin, CEO and co-founder at ASK Partners, adds that with inflation unlikely to return to the 2% target this year, mortgage pressures look set to persist. “Markets are still pricing in a cut before year-end, but with the Autumn Budget looming and an uncertain economic background, policymakers are unlikely to move until fiscal plans are clearer,” adds Austin.
“Resilient sectors such as co-living, build-to-rent and storage continue to attract capital thanks to tight supply and strong demand, but a stable downward inflation trend is critical to unlocking broader activity.”
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