Interest rates – live: Economic growth subdued as rate hold will bring ‘little relief’ to Britons
The BoE expects economic growth to be ‘broadly flat’ through 2024
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The Bank of England‘s governor Andrew Bailey has described economic growth in the UK as “subdued”, as a major charity has warned that keeping interest rates unchanged at 5.25 per cent will bring ‘little relief’ to Britons.
At a press conference Mr Bailey said that economic growth will remain “broadly flat” through 2024 and then recover as we approach 2026.
He added: “Inflation is falling, and we expect it to keep falling this year and next. Our increases in interest rates are working to bring inflation back to the 2% target. So today we have voted to maintain Bank Rate at 5.25%.”
Amid calls in some quarters for the BoE to cut interest rates he said they will not be reduced for “quite some time yet” and that they need to “squeeze inflation out of the system.”
He added: “There’s been no discussion on the committee about cutting interest rates.”
The Joseph Rowntree Foundation (JDF) said the interest rate hold will bring “little relief to millions of families already struggling” with high prices, the rising costs of debt and a sharp increase in unemployment.
Bank of England announcement expected at midday
Good morning and welcome to our Bank of England (BoE) live blog where we will be bringing you the latest updates and analysis on the interest rates announcement at 12pm.
Economists expect the BoE to keep rates at 5.25% due to concerns that the UK economy is heading towards a recession.
In September, the BoE kept rates unchanged at 5.25% - the first hold decision for nearly two years after 14 hikes in a row.
What are interest rates?
An interest rate is a measure that tells you how high the cost of borrowing money is, or how high the rewards of saving are.
If you are borrowing money, typically from a bank, the interest rate on that money is the amount you will be charged for borrowing it.
It is a charge on top of the total amount of the loan and will be shown as a percentage of the overall.
Higher percentages mean paying more money to the lender for borrowing the money.
If you are saving money in a bank account, the interest rate on that money is the amount you will accrue on top of your savings. Banks will pay you a percentage of your total savings, typically at the end of the year.
How do interest rates impact mortgages?
Changes in the Bank of England’s base rate, which is the interest rate at which high street banks borrow from Threadneedle Street, has a knock-on effect on the interest rates that the former then set their mortgage borrowers.
The changes will also affect anyone with savings and anyone who is borrowing money from banks.
‘Bank of England is between a rock and a hard place'
Nick Brooks, Head of Economic and Investment Research at ICG, thinks the BoE is between a rock and a hard place as economic growth is slowing down, but inflation is still running high.
He said:
- The BoE is likely to keep its benchmark rate steady at 5.25% and emphasise that future policy remains data dependent.
- The dilemma the BoE faces is that although economic growth is slowing, the UK’s inflation rate is running at the highest among major developed economies and is proving very hard to bring down.
- Until there is a significant loosening of labour markets, the BoE will likely need to keep rates at current levels, with the risk that it is forced to tighten further in the coming months.
Unite calls on Bank of England to cut interest rates to help hard-up workers
Unite has accused the Bank of England of squeezing workers living standards and have urged them to cut interest rates.
The Monetary Policy Committee (MPC), responsible for setting interest rates makes its decision today at midday.
Unite general secretary, Sharon Graham said: “The Bank of England has been squeezing the living standards of workers while the banks make billions from two years of rising interest rates - this has to stop. High inflation has not been driven by workers it’s been driven by the greed of the profiteers.
“The big four are just picking the pockets of workers to give handouts to shareholders. It’s high time the Bank of England took action against the real culprits of this cost of living crisis.”
Sunak unpopularity could influence Bank decision, suggests economist
Althea Spinozzi, senior fixed income strategist at investment platform Saxo, has suggested Rishi Sunak’s unpopularity could influence today’s decision.
She said the government’s fiscal policies “remain uncertain as Rishi Sunak is losing popularity, adding to inflation upside risk” – suggesting that a desperate PM may be tempted to cut taxes win votes.
“Within this environment, the BoE is on the verge of losing its credibility. It tightened the economy too little, too slowly. There is no option for governor Andrew Bailey other than sticking to the higher-for-longer rhetoric, hoping to maintain a hawkish bias while it’s becoming more apparent that policymakers are afraid of breaking something.”
What is happening with house prices?
House prices rose by 0.9 per cent on average month-on-month in October - likely reflecting a constrained supply of properties for buyers to choose from - according to an index released on Wednesday.
Across the UK, property values fell by 3.3 per cent compared with October last year, Nationwide said. The average UK house price in October was £259,423.
Robert Gardner, Nationwide‘s chief economist, said that despite the month-on-month rise in house prices: “Housing market activity has remained extremely weak, with just 43,300 mortgages approved for house purchase in September, around 30% below the monthly average prevailing in 2019.”
He continued: “The uptick in house prices in October most likely reflects the fact that the supply of properties on the market is constrained.
“There is little sign of forced selling, which would exert downward pressure on prices, as labour market conditions are solid and mortgage arrears are at historically low levels.
“Activity and house prices are likely to remain subdued in the coming quarters.”
He said that with the Bank of England base rate not expected to decline significantly in the years ahead, “borrowing costs are unlikely to return to the historic lows seen in the aftermath of the pandemic.”
Interest rates are already ‘much too high’ and should be cut, says top accountant
Richard Murphy, an economist and Professor of Chartered Accounting Practice at the Sheffield University, said that
“Discussion about the Bank of England’s interest rate decision has focused on whether it will hold rates rather than increase them, but this entirely misses the point about what is needed now.
“Almost certainly, the Bank of England has already wildly overreacted to the inflation that we have, meaning that interest rates are already much too high.
“That fact, coupled with its current policy of quantitative tightening, which is deliberately inflating current financial market interest rates, means that the impact of high interest rates is now almost wholly destructive on the economy, businesses, households and individuals.
“What we need now are urgent and significant interest rate cuts to reduce the harm already caused and to keep businesses, mortgaged households, renters, local authorities and others going when their financial viability is now under threat, but will the Bank of England do that? I very much doubt it. It’s as if they don’t care.”
Unlikely policymakers will vote for interest rates rise, says economist
James Smith, a developed markets economist at ING, said it was unlikely that a majority of policymakers will vote for a rise this month.
“It would only take one committee member to change their mind to tip the balance in favour of more tightening - but we’re doubtful,” Mr Smith said.
He said that there had been little new data since the last vote, so those who voted against hiking rates are unlikely to change their minds. He added that one of those who voted to hike last time - Jon Cunliffe - has since left the MPC.
Business confidence plummets as BoE interest rate decision approaches....
The latest research from Grant Thornton Business Outlook Tracker indicates that businesses are feeling gloomy as we head towards winter and another interest rate decision by the Bank of England.
The latest survey of 600 UK mid-sized businesses finds that, despite a slowing down of inflation, businesses’ confidence in their revenue growth over the next six months has fallen to its lowest level since October last year.
The number of businesses pessimistic about their growth has also more than doubled, from 5% (August) to 11% of respondents.
With interest rates high and likely to remain so for the near future, businesses’ confidence in their funding position has decreased -24pp since August, reaching the second lowest level recorded by the Tracker. The number of those pessimistic in their position more than doubled, from 5 per cent to 12 per cent.
Schellion Horn, Head of Economic Consulting, Grant Thornton UK LLP, said: “While optimism has remained relatively high in our Tracker for the past 18 months, despite the economic challenges faced, this was likely due to many businesses having their funding locked in but it’s likely that high interest rates are now really biting.
“Funding costs are rising and covenants are tightening and so businesses are finally feeling the squeeze. And while another interest rate decision is due today, with inflation stalling unexpectedly in September, it’s unlikely that they will reduce anytime soon.”
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