The scheduled meeting of the Bank of England’s Monetary Policy Committee (MPC) is next week. It is the meeting that had once been considered to result in a cut to the standard base interest rate. However, the forecasts leave little hope for that to happen. The current rate of 5.25% will likely be voted to stay in place by the majority of the members. Without a meeting scheduled for July, the next hope will be for one in August. 

When the rate is cut, it will be the first time since March 2020. The rate began to grow in December 2021 when it rose from 0.1%, an all-time low, to 0.25%. It continued during each consecutive meeting of the MPC to increase until August 2023. Since September 2023, the rate has been held steady by the committee members. 

The meeting next week was optimistically considered a meeting in which the rate could be cut due to the fact there would be two inflation reports between MPC meetings. The May meeting was held prior to the May inflation report. The next inflation data release is the 19 June, and the MPC meeting is the next day on 20 June.

Inflation in May was expected to drop to almost target of 2.0%. However, the 2.3% was short of the forecasted 2.1%. This put a leak in the optimism balloon for a rate cut in spring. Most believe the MPC will close the meeting next week without a rate cut and we will be left waiting for the next gathering.

There is little doubt a rate cut will occur this year, but when is the question. 

Historically a cut to the base rate by the MPC triggers lenders to reduce their interest rate offerings. This is why many believe home buyers are stepping away from the housing market. A slowdown has occurred and rather than pay more than necessary, hopeful home buyers appear to be willing to wait out the MPC.

Borrowers may be unaware lenders began to cut their rates early in the year as they anticipated a rate cut in early spring. Some lenders dropped their rates below the base rate. As the forecasts pushed the rate cut further back, lenders slowly began to pull their lowest rates from the market and deals began to climb. However, some are at the level that would be expected to be found if the MPC cut the base rate.

When the MPC does vote to reduce the rate, it will likely be small and at 0.25% taking the rate to 5.0%.

Recent data reports have revealed the housing market is slowing and blaming the decline on borrowers stepping away to wait out for lower rates. As mentioned, now might actually be the right time to borrow as demand slows and there are attractive lower than expected rates to be found. This is not only true for home buyers but also for homeowners shopping for remortgages.

The slowdown in the housing market is not a concern and is not setting off any warnings. The viewpoint is home buyers are simply waiting for a MPC vote to cut the rate and then they will begin to shop for mortgages and return to the housing market. 

How strong demand grows will be determined by how competitive lenders become in offering first time mortgages and those for home movers. It will also be dependent on how competitive sellers are in bringing their properties to the market to find a quick buyer. Lower asking prices will grab the attention of serious buyers who have waited for cheaper rates.

It has been a long journey to a MPC cut in the base rate. Home buyers, homeowners, and other borrowers have endured higher prices, inflation, and a lack of optimism. As rates are cut, inflation comes under control, optimism returns and confidence in the economy grows it will spill over into strong demand in the UK housing market once more.