Bank of England holds interest rates at 5.25% – what does this mean for the UK property market?

Cornerstone Tax comments on Bank of England holding interest rates at 5.25% and what it means for the property market.

The Bank of England’s Monetary Policy Committee (MPC) has voted to keep interest rates unchanged at 5.25% for the fifth consecutive time, despite lower-than-expected February inflation figures.

The Bank of England aims to cautiously approach future rate cuts, prioritising the reduction of inflation without harming the economy. Since peaking at 11.1% in October 2022, inflation has gradually declined, although prices are still rising, albeit at a slower pace.

The UK’s policy of holding steady interest rates follows 14 consecutive increases aimed at curbing rapid price rises while avoiding adverse effects on the sluggish economy.

Yet still, the UK’s interest rates remain among the highest in the G7 group of advanced economies.

Following the Bank of England’s fifth consecutive decision to pause hikes to the base rate of interest starting in September, this has prompted experts and analysts to insist that interest rates have reached their apex.

David Hannah, Group Chairman of Cornerstone Tax, the UK’s leading property tax advisory, calls for the BoE to seriously consider cutting the base rate in a bid to help boost the UK’s stagnating property market. 

David Hannah comments:

“2023 was an extremely turbulent year in the UK property market, with successive interest rate increases and a generally hawkish approach to the control of inflation by the Bank of England.

“Emerging trends indicate that the BoE may have overcompensated at the expense of the property market.

“February’s inflation figures and mortgage approvals should indicate an overall cooling off of the UK economy which must be acknowledged by the BoE and, in an effort to avoid a sudden crash of inflation, will increase pressure on the MPC to start reducing interest rates sooner rather than later.

“Economies have momentum, with the rate of inflation continuing its downward trajectory towards the BoE’s threshold of 2% – the MPC must look ahead and start thinking about the optimum time to cut rates. 

“I’d urge the MPC to seriously consider cutting the interest rate as even a reduction by a quarter percentage point would signal optimism within the UK economy, with a target base rate of 3-3.5% being the overall goal if the BoE want to truly prioritise buyers in the new year.”

Kindly shared by Cornerstone Tax