Finance and business experts have reacted with dismay to news that the Bank of England has failed to cut the base rate from its 16-year high of 5.25 percent.
They complained that struggling borrowers, particularly people with mortgages and first time buyers, face higher interest rates through to the autumn, taking money out of their pockets.
However, there is a silver lining for savers who will benefit from continuing higher returns on the cash held in savings accounts.
There are suspicions that the Bank and its governor, Andrew Bailey, did not want to make a change in the run-up to a general election for fear of being seen to influence the outcome, although this is denied.
Instead, the Bank insisted concerns about inflation in the service sector – such as pubs, restaurants, hairdressers and hotels – of 5.7 percent means they need to be cautious about cutting the base rate.
Chairman of the Federation of Small Businesses, Martin McTague said: “Yet again, the MPC has opted to stick instead of twist, a move which was widely predicted but which is no less disappointing for it.
“The high plateau rates are currently stuck at is now undermining growth, as small firms struggle to access affordable finance to help them expand.
“Inflation is now back on target, and holding off a cut in the base rate until a future date risks snuffing out tentative signs of a recovery in GDP, with the flat growth in April a warning sign.
“Even with services inflation coming in higher than expected yesterday, the danger posed by stifling growth must not be ignored, as doing so will have potentially devastating consequences for small businesses.”
Ed Monk, associate director for personal investing at Fidelity International, said: “It all means the pain for borrowers goes on.
“With inflation back to 2 percent there will be increasing pressure on the Bank of England to justify the continuation of high rates.
“For savers, now represents a rare opportunity to achieve returns on their money which beat inflation by a clear margin. It should be remembered also that risk-assets such as shares can also benefit during such periods and have a history of generating inflation-beating returns that outpace cash.”
Ben Perks, Managing Director at Orchard Financial Advisers, complained: “The Bank of England leaving rates on hold is holding borrowers to ransom. There is no excuse for this cowardice.
“Mr Bailey’s committee have been inflicting pain on borrowers in the hope that we would hit the 2 percent inflation target. Now we are there, they’ve moved the goal posts.
Ian Hepworth, Director at Funding Solutions UK Limited commented: “They don’t seem to appreciate the desperation that borrowers are facing and they’ve done nothing to ease the suffering. Further proof that those in power are totally out of touch with the people they are meant to be helping.”
Samuel Mather-Holgate, Independent Financial Advisor at Mather and Murray Financial said: “The central bank seem frozen with fear of inflation coming back and getting embedded.
“This is a gut punch for borrowers who have to put up with 16-year high rates for a longer period, and with thousands coming off fixed rates in the second half of the year, they would have been hoping for a rate cut to ease the burden of much higher mortgage repayments.”
Andrew Montlake, Managing Director at Coreco, said: “The Bank of England has once again erred on the side of caution, with wage and services inflation staying stuck at levels the Bank are still uncomfortable with.”
Rohit Kohli, Director at The Mortgage Stop, hit out saying: “Borrowers will be boiling over this summer after the Bank of England held rates yet again despite inflation hitting the magic 2 percent target.”
Managing Director at EHF Mortgages, Justin Moy, said: “Inevitable dithering by the Bank of England will only infuriate mortgage borrowers, as markets price in any potential cuts for the Autumn now, and not the summer.
“Borrowers may see marginal improvements in rates whilst application volumes suffer in the heat, but any thoughts of proper rate cuts have just evaporated.”
Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, the online investment platform, said: “The Bank of England’s decision to hold the benchmark interest rate at 5.25% for the seventh consecutive time may have been anticipated by the financial markets but that won’t ease the disappointment for borrowers hoping for some respite from persistently high borrowing costs.
Nicholas Hyett, Investment Manager at Wealth Club, said: “There were lots of reasons for the Bank of England to sit on its hands this time round.
“Falling inflation has been driven by lower energy and food prices. As we start to lap the very high prices from last year, core inflation will become increasingly important, and service sector inflation in particular remains high at 5.7 percent.
“The net effect is that inflation will likely start to tick up again later this summer. Wage growth too remains high – over 2 percent in real terms – while the economy is expected to grow 0.5 percent in Q2.”
Peter Arnold, EY UK Chief Economist, said: “Successive significant overshoots for services inflation – one of the MPC’s key measures of inflation persistence – had removed any likelihood of interest rates being cut today.
“The EY ITEM Club forecasts that Bank Rate will be cut by 25bps in August and another 25bps in November, meaning Bank Rate ends this year at 4.75 percent.”
