BoE surprises industry by keeping 0.1% interest rate, but hints at possible rise in coming months

The Bank of England’s Monetary Policy Committee (MPC) has voted by a majority of 7–2 to maintain the bank’s interest rate at 0.1%.

However, as it expects inflation to temporarily rise to approximately 5% in the spring of 2022, the MPC hinted at the possibility of an increase in interest rate to return inflation to its 2% target.

The Committee also voted unanimously for the Bank of England to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £20bn.

In addition, the MPC decided to continue the bank’s existing programme of UK government bond purchases, financed by the issuance of central bank reserves, maintaining the target for the stock of these government bond purchases at £875bn and the total target stock of asset purchases at £895bn.

Industry reactions

Many industry experts were surprised by the Bank of England’s decision to hold the rate to 0.1%, with some expecting to see it go up instead.

Simon Lister, independent finance adviser at, said: “Many traders will be left scratching their heads at this decision.

“Essentially, the bank went to the brink, looked into the abyss, and then stepped back. 

“The sheer extent of the economic chaos caused by the pandemic has created an unprecedented caution on the MPC.

“Even if rates had been raised, the rise would almost certainly have been negligible, so savers wouldn’t have been hanging out the bunting.

"For well over a decade, since the global financial crisis, savers have been under siege and even though the bank has made it crystal clear that rates will be going up soon enough, there’s a chance many of us will not see the historical interest rate average again in our lifetimes."

Giles Coghlan, chief currency analyst at HYCM, added: “This dovish decision is a surprise; speculation had been rife that they would hike rates, but evidently, the Bank of England is wanting more time before taking such action.

“There is logic to this — inflation might be rising, but the Bank of England is right not to consider an interest rates hike as a silver bullet to this problem.

“Raising rates right now would risk harming businesses’ recoveries and would also discourage people to spend their pent-up savings. 

“All of this would damage the UK economy’s post-pandemic recovery and could result in ‘stagflation’, where inflation rises but the economy stagnates.”  

However, while the decision to keep the interest rate to 0.1% was welcomed by some, other experts believe this could affect the housing market and in particular new buyers.

Iain McKenzie, CEO at The Guild of Property Professionals, said: “The absence of an interest rate rise from today’s announcement provides much-need breathing space for those worried about their mortgage payments.

“Impending rises are only likely to be delayed for a short while, so it is worth preparing for the effect it could have on your chances of getting a mortgage.

“Any future rise in interest rate could potentially put the brakes on the house price boom of the past year, with more prospective buyers possibly deterred by the increased costs of buying a home.”

Guy Harrington, CEO at Glenhawk, commented: “The MPC seems undeterred by the fact that the past 18 months have disproportionately benefitted existing homeowners and this rate decision will continue to make it harder for first-time buyers to get onto the property ladder.

“Affordability will now be stretched to an unreasonable point, with inflationary pressure squeezing more people out of the market and delaying first home purchases, with no house price cliff edge in sight.”

Nicky Stevenson, managing director at Fine & Country, added: “While the delay in raising rates will give first-time buyers in particular some breathing space, the concern will continue to be whether this just kicks the inflationary can down the road. 

“What the housing market and borrowers don’t want to see is a series of rapid rises in quick succession. 

“Already, some buyers will feel aggrieved that, thanks to the large hints dropped of the past month, several high street lenders have jumped the gun and increased borrowing costs already. 

“This has already begun to squeeze affordability and with rate rises a question of when, not if, borrowing costs are unlikely to revert back to what they were simply because of a small delay.”

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