The Bank of England has reduced interest rates for the first time since the onset of the Covid pandemic, a move hailed by one financial expert “starting a new chapter for the housing market”.
After maintaining borrowing costs at their highest since the 2008 financial crisis for a year, the Bank’s monetary policy committee (MPC) voted by a narrow margin to lower its base rate by a quarter of a percentage point to 5%.
Revealing internal disagreements among the central bank’s top officials regarding the timing of the cut, the MPC was divided five to four. Governor Andrew Bailey cast the deciding vote for the first reduction in borrowing costs since March 2020.
Bailey stated that inflationary pressures had “eased enough” to justify the first reduction in borrowing costs since the Bank halted its interest rate hikes a year ago – the longest period rates have been held steady after a hiking cycle since the early 2000s.
Despite the rate cut, the MPC cautioned: “Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further,” it said.
However, Anthony Codling, managing director for equity research at RBC Capital Markets, believes the rate cut will have a domino effect for property.
He said:
“The first Bank Rate cut starts a new chapter for the housing market.
“The worst is over. The MPC believes that inflationary pressures have loosened, mortgage rates are likely to fall, and housing market activity is likely to rise. “We believe that lenders will feel pressure to pass the Bank Rate cut onto borrowers and this could set the housing market up for a strong autumn selling season.”
So will interest rates continue to fall at the MPC's next meeting in November? At Richardsons we're not so sure, this could be the 'new normal' for some time now, although you can be sure we'll be keeping a close eye on it when the time comes.
