The Bank of England's Monetary Policy Committee has voted 6-3 to maintain Bank Rate at 4.25%.
Three members preferred to reduce Bank Rate by 0.25%, to 4%, more than predicted by industry experts who had largely expected a 7-2 split.
The decision was widely expected following yesterday's inflation figures which show that CPI inflation remained elevated at 3.4% in May.
Several industry experts were downbeat about the 'sticky' inflation figure, with some predicting that we may see just one more rate cut this year. However, today's vote has ignited hopes of a rate cut at the MPC's next meeting in August.
In its meeting, the MPC noted that underlying UK GDP growth remains weak and the labour market has continued to loosen, "leading to clearer signs that a margin of slack has opened up over time".
It also noted ongoing global uncertainty and said the Committee will "remain sensitive to heightened unpredictability in the economic and geopolitical environment, and will continue to update its assessment of risks to the economy".
The MPC last reduced Bank Rate by 0.25% at its previous meeting in May.
Michael Saunders, former member of the MPC and now a senior economic advisor at Oxford Economics, commented: "Softness in business surveys suggests the strong Q1 GDP data was erratic. With monetary policy still restrictive, fiscal policy tightening and elevated trade policy uncertainty, economic growth is likely to be sluggish in coming quarters. As a result, disinflationary pressures will probably increase further.
"But the path to further easing is becoming clearer. I expect the MPC to cut Bank Rate 25bp in August, with easing of about 100bp over the year ahead — somewhat more than markets price in.”
Hugo Davies, chief capital officer and MD of mortgages at LendInvest, said: “A hold at 4.25% was widely expected - markets were pricing in an 85% probability this week - and it reinforces a growing sense of stability for those either investing in, letting or developing real estate. With core inflation easing and CPI now sitting at 3.4%, the Bank can breathe a sigh of relief as it yet again muddles through another batch of datapoints without a nasty surprise.
"We expect to see the next cut in August (markets pricing in 90% probability), acting as an adrenaline shot in the post-summer window. Stronger, more constructive guidance from the Bank about the direction of travel, given a recent GDP shock and structural weakness in the labour market, will build confidence, increase transaction levels and deliver more homes."
Steve Cox, chief commercial officer at Fleet Mortgages, commented: “Today’s decision by the Bank of England to hold Bank Base Rate was widely expected, particularly in light of global uncertainties and the need for continued reassurance inflation is sustainably on its way back to target. With this week’s CPI figure holding at 3.4%, it’s understandable the MPC is choosing to proceed with some caution. That said, today’s decision has raised the prospect of a cut at the next meeting in August but again, a lot can happen both internationally and domestically between now and then, which means it’s very difficult to predict this seven or so weeks in advance."
Paresh Raja, CEO of Market Financial Solutions, added: “When it cut the base rate in early May, the MPC strongly indicated that further cuts would follow. But economic and political landscape, both in the UK and globally, continues to evolve at pace – pronounced turbulence and uncertainty made a hold today almost inevitable.
"But we should see the bigger picture: the base rate is 0.75% lower than it was ten months ago, and a gradual decrease is still expected in the coming year. The challenge right now is to ensure inertia doesn't set in within the property market while would-be buyers wait for further cuts; we have to unlock buyer demand right now."
