The Bank of England is expected to keep interest rates on hold when its policymakers announce their next decision later. The Bank cut the rate to 4.25% in early May, when its Monetary Policy Committee (MPC) also hinted at more reductions to come. But analysts think those cuts will not arrive until later in the year, as the rate of price rises remains above target. The Bank rate is the key benchmark for lenders setting the cost of borrowing, and for banks and building societies deciding what returns to pay to savers. The decision will be announced by the MPC at 12:00 BST. When interest rates were cut in May from 4.5% to 4.25%, it was the fourth reduction in a year. While the downward staircase of interest rates is expected to continue, there are some complicated and conflicting issues for the nine-member committee to consider. Growth in the UK economy remains somewhat sluggish, putting pressure on policymakers to cut rates to boost investment and growth. The economyunexpectedly shrank by 0.3% in Aprilafter taxes increased for businesses, household bills jumped, and exports to the US plunged. However, the rate of inflation remained atits highest level for more than a yearin May, at 3.4%. Food prices, in particular, jumped. As an essential for any household budget, that creates a further squeeze on personal finances. The Bank uses interest rates as its primary tool for bringing inflation to its target level of 2%. A rise in rates can limit demand and therefore reduce inflation, although that has an impact on the economy. Policymakers will also be closely monitoring the impact of global tensions. The conflict between Israel and Iran could well push up the price of oil. As well as affecting the price paid by drivers at the pumps, any sustained increase would have a significant effect on inflation. Meanwhile, the fall-out from the US policy on tariffs will also need to be factored into their calculations. Many economists believe there will be two more interest rate cuts by the Bank this year. However, some others only expect one. "We forecast inflation to remain above 3% for the remainder of the year amidst persistent wage growth and the inflationary effects from higher government spending," said Monica George Michail, associate economist at the National Institute of Economic and Social Research. "Additionally, the current tensions in the Middle East are causing greater economic uncertainty. We therefore expect the Bank of England to keep rates on hold this Thursday and implement just one further cut this year." Expectations for the Bank's base rate are influential in what High Street banks and lenders charge customers to borrow money or what they give to savers. The higher level in recent years has meant people are paying more to borrow money for things like mortgages and other loans, but savers have also received better returns. More than eight in 10 customers have fixed-rate deals, and have been seeing increased bills when renewing in recent years. Fixed mortgage rates have been relatively static in recent weeks. The latest figures show the average rate on a two-year fixed mortgage was 5.12% while, for a five-year deal, it was 5.10%, according to financial information service Moneyfacts. About 600,000 homeowners have a mortgage that tracks the Bank's rate, so any rate cut would have an immediate impact on monthly repayments.
Bank of England expected to hold interest rates at 4.25%
TruthLens AI Suggested Headline:
"Bank of England Set to Maintain Interest Rate at 4.25% Amid Inflation Concerns"
Bbc News
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TruthLens AI Summary
The Bank of England is widely anticipated to maintain its interest rate at 4.25% during the upcoming policy announcement from the Monetary Policy Committee (MPC). This decision follows a reduction from 4.5% to 4.25% earlier in May, marking the fourth rate cut within a year. Analysts suggest that while further cuts are likely, they may not occur until later this year because inflation rates are currently above the Bank's target of 2%. The MPC's decision will be revealed at 12:00 BST, and it is critical because the Bank's interest rate serves as the benchmark for borrowing costs and the returns offered by banks and building societies to savers. The UK economy has shown signs of sluggish growth, having unexpectedly contracted by 0.3% in April due to rising business taxes, soaring household bills, and a decline in exports to the US, which increases the pressure on the MPC to stimulate growth through lower rates.
Despite the Bank's efforts to lower rates, inflation remains a pressing concern, with the latest figures showing a rate of 3.4% in May, largely driven by rising food prices. This situation further complicates the MPC's decision-making process, as the Bank aims to balance stimulating economic growth with controlling inflation. Additionally, global factors, such as the ongoing conflict in the Middle East, could exacerbate inflation by pushing up oil prices, which would in turn affect household budgets and overall economic stability. While some economists predict two additional rate cuts by the end of the year, others foresee only one. The current economic climate, marked by persistent wage growth and government spending, contributes to the uncertainty surrounding inflation. As a result, the Bank of England is expected to maintain the current rate this Thursday, with a cautious outlook for the rest of the year, impacting both borrowers and savers across the UK.
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