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Base rate held at 0.75%

The Bank of England’s monetary policy committee has voted unanimously to keep the base rate at 0.75 per cent.

The rate has stayed at this level since it was raised from 0.50 per cent in early August last year.

Minutes from the MPC meeting show that GDP growth of 0.5 per cent is expected in the first quarter of the year, due to a build up of business inventories, which is likely to then drop to 0.2 per cent in Q2.

The minutes add that the MPC is still eyeing a gradual tightening of monetary policy with a rate target of 1 per cent, depending on the outcome of Brexit.

Meanwhile, the BoE’s May inflation report states that the MPC sees UK house prices decreasing by 1.25 per cent by the end of 2019, and mortgage approvals to average 60,000 per month.

Santander UK chief economist Frances Haque says: “Given the continued uncertainty over the timing and nature of Brexit, the decision to hold rates will not be a surprise to the market.

“While growth in the first quarter of this year looks set to be stronger than previously expected, the MPC continues to be cautious in its approach, waiting until the Brexit outcome is clearer before raising rates further.

“It now looks increasingly unlikely that we will see a rate rise this year.”

Coreco director Andrew Montlake adds: “Against a backdrop of Brexit uncertainty, the Bank of England is clearly bearish on the UK property market.

“The British public, by contrast, is proving considerably less bearish, with a sharp pick-up in activity levels during the past couple of months.

“One key driver of increased activity levels, as the Bank of England highlights, is the extraordinary level of competition between lenders.

“This is particularly the case at higher LTVs, which is drawing more first-time buyers than ever into the market.”

James Pendleton founder and director Lucy Pendleton adds that, “the outlook for house prices has dropped off a cliff in a pretty dramatic fashion over the past quarter.

“An about-turn on this scale will cause a few worry lines but, if proved correct, this kind of price action will at least get the market moving.

“As a country, we have been labouring under a slump in transactions that has exacerbated affordability problems in many areas as lack of demand has kept prices artificially high… in the long run a correction in prices is probably the medicine our housing market needs.”

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