This week the Monetary Policy Committee voted unanimously to keep the Bank of England base rate at 0.25%. Since the record-low rate was introduced on 4 August 2016, it appears to have had a positive effect, with economic growth at 0.3%, higher than the predicted 0.1%. For this reason, the MPC decided not to lower the base rate further – at least, not for now.
Khaled Chahal, who has recently joined Henry Wiltshire as Head of Investment and Commercial Agency, looks at the bigger picture.
The immediate future
“Economists agree that retaining the 0.25% base rate is a short term solution,” says Khaled. “The economic effects of Brexit are not yet fully known, and are not likely to pan out until the process of leaving the EU is activated. In the meantime, the economy is quite volatile, and the Bank of England may well choose to lower the rate again, possibly to 0.1%. Mark Carney, the Governor of the Bank of England, has ruled out negative rates, but is likely to keep rates low to stimulate the economy still further.”
Low interest rates
There are several arguments for lowering the base rate below 0.25%. While it’s bad news for people with large savings accounts, it opens up the market to more property buyers and investors than ever before. Khaled explains:
“Lowering interest rates makes it easier for people to borrow money, making spending easier and, in turn, boosting the UK economy. The property market will do particularly well out of this, as most property buyers have to borrow money to achieve their goals. A boost to the property market inspires confidence all round – it’s an important step to getting the economy back on its feet.”
What the weak pound means for the property market
The current low interest rate – and the projections that it might be lowered further – mean that the pound is unlikely to recover its pre-EU Referendum strength any time soon. Weak currency makes importing anything, including labour, expensive, but it also makes the UK property market very attractive to overseas investors, at least in monetary terms.
“Overseas investors were able to buy property at a discount after the referendum,” says Khaled. “With the Bank of England lowering the base rate and keeping it low, we should continue to see brisk trade from overseas buyers.”
Leaving the EU is an unprecedented move. No one knows quite what the future holds, and it’s easy to see why the Bank of England is being so cautious. For now, however, low interest rates mean that it’s a great time to take out a mortgage or even remortgage. Overseas investors benefit from the weak pound, making money go further at no loss to the UK vendor.