The Bank of England has decided to maintain its base interest rate at 4.5%, following a vote by the Monetary Policy Committee (MPC) with a majority of 8-1. This decision comes as inflation continues to rise, reaching 3% in January, and is expected to increase further to around 3.7% by the third quarter of 2025.
In Scotland, the impact of this decision will be felt across various sectors, including housing and savings. While the decision may not immediately boost the housing market, lenders have been reducing their pricing on new fixed-rate mortgage products, offering some relief to borrowers.
Mark Harris, Chief Executive of SPF Private Clients, highlighted that “a number of sub-4% deals are now available for those with the biggest deposits or sizeable levels of equity in their homes.”
Hamish Martin, Partner at LAVA Advisory Partners, said: “While the base rate’s been held at 4.5%, it remains likely that there will be further cuts this year, even if the rate at which those cuts come will now be slower than most had expected at the start of the year. Inflation is still challenging, while Trump’s tariff-heavy policies are also giving the Bank food for thought.”
“That said, such a divergence from the European Central Bank’s rate of 2.5% makes the Bank of England rate start to look circumspect given the similar economic conditions – and with growth forecasts having been revised downwards, I’d expect to see some gradual reductions in the base rate throughout the year to help stimulate the economy. To that end, next week’s Spring Statement, when the Chancellor will be providing an update on the state of the UK economy, may in turn encourage bolder action from the Bank of England when it next meets in early May.”
Alpa Bhakta, CEO of Butterfield Mortgages Limited, said: “While property investors were hoping for a rate cut, the economic climate and property investment outlook are in a much better position than in previous years. It’s important to remember, the upcoming Spring Budget and new tax year could influence market conditions and introduce some uncertainty. As such, it’s essential for lenders to stay proactive, supporting borrowers and brokers, to ensure the market can capitalise on its strong start to the year.”
Luke Bartholomew, Deputy Chief Economist at Aberdeen, commented:
“No surprises from the Bank of England today at least in its decision to keep interest rates on hold. However, the vote breakdown was more striking with Catherine Mann having gone from voting for a 50bps cut to now voting to keep policy on hold. The Bank has a very challenging economic environment with growth having slowed but inflation pressures remaining elevated. This will keep the Bank on its “gradual and careful” cutting path for now, with another cut likely in May. But beyond that, much will depend on trade policy out of the US and the fiscal announcements coming from the chancellor at the Spring Statement next week.”
The economic uncertainty, partly driven by global trade tensions and geopolitical factors, has influenced the Bank’s cautious stance. The next potential rate cut is speculated to occur in May, depending on how inflation and economic growth evolve.
The market expects interest rates to potentially fall later in the year, which could lead to more favourable mortgage conditions in Scotland. However, this depends on inflation trends and economic stability.
In summary, while there’s no immediate change for variable-rate mortgages in Scotland, fixed-rate deals may offer better terms for those with larger deposits. The overall impact on affordability remains a concern, particularly for first-time buyers with smaller deposits.
