The Bank of England’s (BoE) base rate is also often referred to as the Base Rate. It is the interest rate at which the central bank provides funds to banks and plays a vital role in shaping economic activity and financial stability in the UK by influencing inflation rates and overall economic conditions over time. This is due to various factors like shifts in monetary policy and global events that have occurred throughout history.
This article explores the changes in the BoE base rate and how they have impacted the economy over time as well as their relevance for a mortgage CRM system like ClientTree.
The Beginnings of the Base Rate
The Bank of England was founded back in 1694. Is considered one of the oldest central banks globally with a rich history of supporting the government financially in times of need through its creation process. The introduction of the Base Rate was a step to regulate the money flow and oversee the economic dynamics. Initially, the rate changes were primarily influenced by the government’s requirements rather than focusing on inflation control or economic stability efforts.
In the 19th century, the primary interest rate was greatly affected by the gold standard, where the British pound’s worth was linked to a set amount of gold. This required adjustments to the Base Rate in order to uphold the reserves and the currency’s value. Consequently there were fluctuations in the Base Rate during times of economic instability, like wars or financial downturns.
Significant Shifts during the 20th Century
The last century’s course of events saw significant shifts in how the Bank Rate was handled by authorities. The decision to move away from the gold standard in the 1900s led to a more adaptable approach to monetary policies that empowered the BoE to use the base rate effectively in steering inflation and economic development.
After the Second World War ended and the UK experienced economic difficulties like steep inflation rates and the necessity for rebuilding its economy, the 1950s and 1960s saw the Base Rate being used to manage inflation and maintain economic stability. The interest rate was increased to discourage excessive borrowing and spending while it was lowered to boost economic growth during times of recession.
In the 1990’s recession period, the UK saw a drastic interest rate drop as a response to inflation pressures from the previous decade’s economic challenges. A significant shift also occurred in 1997 when the Bank of England gained autonomy to determine its base rate without direct government intervention. The goal of this action was to take the politics out of policy and ensure economic stability in the long run.
A new century, a new era
During the 2000s, the changes in the Base Rate were due to worldwide economic circumstances like the dot com bubble and the global financial meltdown in 2007-2008 linked to mortgage backed securities.
To counteract the crisis and to prevent a severe economic downturn from further unfolding, the Bank of England took unprecedented measures by drastically lowering the base rate to historical lows. By March 2009 the rate had fallen to 0.5% and started a phase of rock-bottom mortgage interest rates.
At the same time, self-certified mortgages and 100%+ mortgages disappeared, and mortgage broker numbers dropped along with a reduction in lender choice and deal options.
In the following years, regulation has tightened, which also impacted the world of mortgage technology – the requirements for keeping accurate records of client data, consents and transaction-related documents.
Using paper-based processes presented an increasing challenge when trying to be compliant, so the technology to match the demand started to evolve at a fast pace. This included new CRM systems, sourcing systems and various other tools to help mortgage and insurance brokers.
Recent events
The Base Rate remained low until a slight increase in 2018 and a historic drop to 0.1% in March 2020 in response to the COVID pandemic-triggered economic downturn. This measure was implemented to provide support during a period of uncertainty. By keeping borrowing costs at rock bottom levels, the intention was to incentivise businesses and individuals to spend and invest more, thereby softening the blow of the pandemic on the economy.
It seems to have also triggered a period of reflection, when businesses and individuals have also re-evaluated the property and mortgage markets, various industry and consumer requirements and started to work on new technology ideas to provide solutions.
The tide turned in December 2021, when the Base Rate started its climb back again with mortgage interest rates following closely behind. This trend then escalated with the so-called “mini budget” in September 2021, which triggered an overnight jump in interest rates and an industry-wide panic to secure mortgage deals, which were being withdrawn at a moment’s notice.
Mortgage sourcing system providers struggled to keep up with the number of changes and short notices, while brokers struggled to record transactions in a compliant way in their CRM systems, which were not designed to deal with recording multiple applications for a single purchase or remortgage.
The ClientTree CRM software was officially launched just as the Base Rate stabilised around 5% in the Summer of 2023 and incorporated the learning from past challenges to provide a sustainable solution to UK mortgage brokers going forward.
In summary
The Bank of England’s base rate history mirrors how monetary policy has adapted to shifting circumstances over time. Starting from its connection to the gold standard in the past to its present function of overseeing inflation and economic equilibrium, the base rate remains a crucial part of the BoE’s strategy to navigate and influence the UK economy.
The changes and movements in the Base Rate offer information on how monetary policy impacts various aspects such as mortgage rates and mortgage brokers’ work through technology. A flexible CRM software is therefore key in maintaining business efficiency and operational continuity.
