2024-09-18 23:01:19
Interest rates are expected to be held at 5% by the Bank of England on Thursday.
The decision at midday comes after it was revealed inflation, which measures the rate UK consumer prices are rising at, remained at 2.2% last month.
The figure remains just above the Bank’s 2% target, but its governor Andrew Bailey has warned people not to expect a sharp fall in rates in the coming months.
Economists and investors are betting on rates to be left unchanged on Thursday and for the Bank to opt to cut them again in November instead.
Rob Wood, chief UK economist at economic research consultancy Pantheon Macroeconomics, said the inflation data released on Wednesday gave the Bank of England “little reason to rush to cut interest rates again” on Thursday.
“It still seems likely that they will decide to keep interest rates paused this month, and instead wait to cut rates again in November and December,” added Susannah Streeter, head of money and markets, at investment firm Hargreaves Lansdown.
Interest rates dictate the cost of borrowing set by lenders for loans such as mortgages and credit cards – as well as the returns on savings.
While rates were cut for the first time since March 2020 last month, the cost of borrowing remains high, with homeowners on fixed rate mortgages still facing the prospect of much higher repayments when deals expire over the next few years.
Mr Bailey has previously warned the Bank must “make sure inflation stays low and be careful not to cut interest rates too quickly or by too much”.
The decision to cut rates in August was tight. Five of the Bank’s nine-member Monetary Policy Committee (MPC), voted for a quarter point cut.
Allan Monks, UK economist at investment bank JP Morgan, said it expected the Bank to hold rates.
“The MPC is minded to ease cautiously and we look for the next cut in November,” he added.
“The Bank has been turning more dovish lately, but requires more favourable data surprises to easing more quickly.”
Rates have climbed in recent years as the Bank has tried to slow the pace of consumer price rises.
Prices started rising quickly as demand for goods increased when Covid lockdown restrictions were lifted. But energy and food prices then soared following Russia’s invasion of Ukraine. This led to inflation peaking at 11.1% in October 2022 – the highest rate in 40 years.
The theory behind increasing interest rates to tackle inflation is that by making borrowing more expensive, more people will cut back on spending and that leads to demand for goods falling and price rises easing.
But it is a balancing act as high interest rates can harm the economy as businesses hold off on investing in production and jobs.
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What are the implications of the Bank of England holding interest rates at 5%?
Table of Contents
Bank of England Expected to Hold Interest Rates at 5% Amid Stable Inflation
The Bank of England is anticipated to maintain interest rates at 5% on Thursday, following the latest inflation data that showed consumer prices rising at a steady rate of 2.2% in August. The move is expected to provide relief to borrowers, but savers may need to wait longer for better returns.
Inflation Remains Above Target
The inflation rate, which measures the rate of change in consumer prices, has remained above the Bank of England’s 2% target, but within a manageable range. While this has led to concerns about the overall health of the economy, Governor Andrew Bailey has cautioned against expecting a sharp fall in interest rates in the near future.
Economists Bet on No Change
Economists and investors are betting on the Bank of England to hold interest rates steady, with many predicting a rate cut in November instead. Rob Wood, chief UK economist at Pantheon Macroeconomics, noted that the latest inflation data gives the Bank “little reason to rush to cut interest rates again” on Thursday. Susannah Streeter, head of money and markets at Hargreaves Lansdown, added that it’s likely the Bank will wait to cut rates again in November and December.
Impact on Borrowers and Savers
Interest rates have a direct impact on the cost of borrowing and the returns on savings. While rates were cut for the first time since March 2020 last month, the cost of borrowing remains high, particularly for homeowners on fixed-rate mortgages who face the prospect of higher repayments when their deals expire. On the other hand, savers are still waiting for better returns on their deposits.
Central Bank’s Cautious Approach
Governor Bailey has emphasized the need for caution in cutting interest rates, warning that the Bank must “make sure inflation stays low and be careful not to cut interest rates too quickly or by too much.” The decision to cut rates in August was a close call, with five of the nine-member Monetary Policy Committee (MPC) voting in favor of a quarter-point cut.
Expert Insights
Allan Monks, UK economist at JP Morgan, expects the Bank to hold rates, citing the MPC’s cautious approach to easing. “The Bank has been turning more dovish lately, but requires more favorable data surprises to ease more quickly,” he said.
Rising Interest Rates in Recent Years
Interest rates have climbed in recent years as the Bank of England has sought to slow the pace of consumer price rises. Prices started rising quickly as demand for goods increased when Covid lockdown restrictions were lifted, and energy and food prices soared in subsequent months.
What’s Next?
As the Bank of England grapples with the challenges of maintaining economic stability, borrowers and savers alike will be watching closely for signs of changes in interest rates. While a rate cut in November is possible, it’s clear that the Bank will continue to take a cautious approach to monetary policy in the months ahead.
Optimized Keywords: Bank of England, interest rates, inflation, borrowing, saving, mortgages, credit cards, consumer prices, monetary policy, economic stability.
Meta Description: The Bank of England is expected to hold interest rates at 5% amid stable inflation, providing relief to borrowers but potentially delaying better returns for savers. Read more about the implications of this decision and what it means for the economy.
What are the reasons behind the Bank of England’s decision to hold interest rates at 5% amidst stable inflation?
Bank of England Expected to Hold Interest Rates at 5% Amid Stable Inflation
The Bank of England is anticipated to keep interest rates unchanged at 5% on Thursday, following the latest inflation data, which revealed that UK consumer prices remained steady at 2.2% last month. This decision is expected to have a significant impact on the country’s economy, affecting borrowing costs and savings rates.
Inflation Remains Above Target
The inflation rate, which measures the pace of price increases, has remained just above the Bank’s 2% target. While the figure is still higher than desired, it has not changed significantly, providing the Bank with little incentive to alter interest rates at this time. Governor Andrew Bailey has cautioned against expecting a sharp fall in rates in the coming months, suggesting that the Bank will adopt a cautious approach to monetary policy.
Economists Predict No Change
Leading economists and investors are betting on interest rates being left unchanged on Thursday, with many expecting the Bank to opt for a rate cut in November instead. Rob Wood, chief UK economist at Pantheon Macroeconomics, stated that the latest inflation data gives the Bank of England “little reason to rush to cut interest rates again” on Thursday. Similarly, Susannah Streeter, head of money and markets at Hargreaves Lansdown, believes that the Bank will decide to keep interest rates paused this month, and instead wait to cut rates again in November and December.
Impact on Borrowing and Savings
Interest rates have a direct impact on the cost of borrowing and savings rates. While rates were cut for the first time since March 2020 last month, the cost of borrowing remains high. Homeowners on fixed-rate mortgages are still facing the prospect of higher repayments when their deals expire in the coming years. The Bank’s decision to hold interest rates steady will provide some relief to borrowers, but savers may be disappointed by the lack of change.
Monetary Policy Committee’s Deliberations
The Bank’s Monetary Policy Committee (MPC) has been divided in its decision-making, with five of its nine members voting for a quarter-point cut last month. The MPC’s cautious approach is likely to continue, with Allan Monks, UK economist at JP Morgan, predicting that the Bank will hold rates steady and wait for more favorable data before making any changes.
Inflation Control and Economic Growth
The Bank has been attempting to slow down consumer price rises by increasing interest rates. However, the situation remains delicate, with prices initially surging after the lifting of Covid lockdown restrictions and then soaring further due to the Russian invasion of Ukraine. The Bank’s goal is to balance inflation control with economic growth, making it a challenging task.
Conclusion
the Bank of England is expected to hold interest rates steady at 5% on Thursday, citing stable inflation and a cautious approach to monetary policy. This decision will have significant implications for borrowing costs and savings rates, and will be closely watched by economists, investors, and policymakers. As the Bank navigates the complex task of balancing inflation control and economic growth, it is essential to stay informed about the latest developments in the UK economy.
Keywords: Bank of England, interest rates, inflation, monetary policy, borrowing costs, savings rates, economic growth, UK economy.
