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 £20 billion.
Since the August MPC meeting, the pace of recovery of global activity has shown signs of slowing. Against a backdrop of robust goods demand and continuing supply constraints, global inflationary pressures have remained strong and there are some signs that cost pressures may prove more persistent. Some financial market indicators of inflation expectations have risen somewhat, including in the United Kingdom - however, the Committee maintained the current stance on monetary policy, saying that it would monitor changes closely.
The meeting minutes concluded: "At its previous meeting, the Committee judged that should the economy evolve broadly in line with the central projections in the August Monetary Policy Report, some modest tightening of monetary policy over the forecast period was likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term. Some developments during the intervening period appear to have strengthened that case, although considerable uncertainties remain. "
"The Committee will be monitoring closely the incoming evidence regarding developments in the labour market, and particularly unemployment, wider measures of slack and underlying pay pressures; the extent to which businesses pass on wage and other cost increases, as well as medium-term inflation expectations."
Martijn van der Heijden, Habito, commented: "Despite today's decision to keep the base rate steady, all arrows continue to point to a rise being on the near horizon. “The OECD warned this week, that the UK is expected to have inflation running at about 3% at the end of 2022, the highest rate of the advanced economies. Meanwhile, the governor, of the Bank of England, Andrew Bailey, told MPs on the Treasury select committee that the MPC was split 4-4 in August, on whether the conditions had been met for a rise in interest rates, though clearly haven’t yet decided whether those conditions are “sufficient” for a rate increase.
"Borrowers who are on a variable rate should still consider the impact that any base rate rises this year could have on their mortgage. Even if the rate increases by as little as 0.25%, this could see their repayments shoot up by hundreds of pounds a year, so it's worth looking at all the options.
“In the coming months, household finances look likely to be squeezed by energy prices, food prices, as well as an increase in National Insurance payments. As such, we’re predicting that longer term fixes become more popular for homeowners, as people try to lock-in more future certainty over their living costs and bills.
“There are record-low deals of under 1% to be had for 2-year fixes, but these will not protect homeowners from any increase in mortgage prices for very long. Our customer data points to a 6% uplift in remortgage submissions between July and August 2021, and a continued move away from two-year fixed mortgages to five-year or longer-term fixed rate mortgages. From speaking to customers we know that they are wise to the real possibility of rising interest rates by the time they remortgage again in the future.
"This year saw the launch of deals like Habito One, where the rate is fixed for the whole mortgage term, from 10-40 years, so homeowners can now choose how much price protection is right for them and for how long."
Frances Haque, Santander, said: “The MPC’s decision to leave Bank Rate unchanged at 0.1% was expected given the fact that the MPC has continued to state that they will look through transitory rises in inflation.
“Although August saw the largest jump in inflation between any two months since records began, rising to 3.2%, the Bank had predicted that inflation would be around 3% at this point. This was largely due to the effects of falling prices that were seen, in part, as a result of falls in restaurant and café prices from the Eat Out to Help Out scheme.
“As the MPC has discussed before, it will continue to keep a close watch on what happens in the job market and to wages, which have the potential to create more sustainable inflation and be of concern to the MPC members. If this were to arise then there remains the possibility of an earlier rise in Bank Rate.”
Kevin Roberts, Legal & General Mortgage Club, says: “Today’s decision to keep the base rate at a low level will not surprise most as it is likely an attempt to limit the rising cost of living and ensure that the borrowing climate remains affordable. However, while today’s decision is welcome news for both future buyers and existing homeowners, other housing costs, particularly energy prices, are rising.
“Anyone worried about growing housing costs should seek the guidance of an independent, experienced mortgage adviser to help them to use the ongoing rates war to their advantage by reducing their monthly repayments. Though the cost of living is rising borrowing remains very affordable, making now a fantastic time to refinance and make savings.”
