UK interest rates: Bank of England announces interest rate decision after fall in inflation
Bank decision on interest rates comes a day after inflation fell to 2%
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Interest rates have been frozen by the Bank of England for the seventh consecutive month despite another drop in inflation.
Bank chiefs on Thursday held the rate at 5.25 per cent in another blow to workers, homeowners and borrowers.
It comes after official figures published on Wednesday showed that rising prices had fallen back to 2 per cent - the Bank’s target - for the first time in nearly three years, down from 2.3 per cent in May.
The latest inflation figures mean that prices are still rising across the country, but at a much slower rate than in recent years when households and businesses were being squeezed during the peak of the cost crisis.
After the fall in inflation, the Confederation of British Industry (CBI) said the stage was now set for the bank to cautiously cut interest rates in August.
CBI principal economist Martin Sartorius said on Wednesday: “Today’s data sets the stage for the Monetary Policy Committee to cut interest rates in August, in line with our latest forecast’s expectations.”
Bank of England expected to hold interest rates at current level
The Bank of England (BoE) is set to hold interest rates at the current level despite inflation falling back to the 2 per cent target for the first time in nearly three years.
The UK’s central bank is expected to freeze interest rates at 5.25 per cent on Thursday after steadily increasing rates since 2021 in an effort to bring down inflation.
It comes after the Office for National Statistics revealed the Consumer Prices Index (CPI) dropped to 2 per cent in May, down from 2.3 per cent in April.
What have economists said?
Experts have cautioned that a rate cut this summer could be less likely until the majority of the Bank’s Monetary Policy Committee (MPC) feel certain that inflation is under control.
Crucially, the rate of services inflation, which looks only at service-related categories like hospitality and culture, and is a key gauge for policymakers, has remained more stubborn than expected.
James Smith, developed economist for ING bank said: “Indeed at 5.7 per cent, services inflation is now 0.4 percentage points above the Bank’s forecast from the May Monetary Policy Report.
“That all but confirms the Bank of England will keep rates on hold on Thursday. We’re therefore sticking to our call for the first rate cut to come in August, with a total of three cuts this year.”
Laura Suter, director of personal finance at AJ Bell, added: “It’s highly likely the Bank will want to wait to see the outcome of the election and the final economic plans before making that first cut.
“With no meeting in July, that means all eyes are now firmly on the August MPC meeting for our first potential cut to rates.”
Inflation drops to Bank of England’s 2% target for first time in almost three years
Inflation has fallen back to the 2 per cent target for the first time in nearly three years in a boost for prime minister Rishi Sunak’s faltering election campaign.
The Office for National Statistics figures show the Consumer Prices Index (CPI) dropped to 2 per cent in May, down from 2.3 per cent in April.
The new figure marks the first time inflation has been at the Bank of England’s target since July 2021, before the cost-of-living crisis saw inflation shoot up – at one stage hitting levels not seen for 40 years.
Inflation drops to Bank of England’s 2% target for first time in almost three years
Inflation dropped to 2% in May, down from 2.3% in April, according to the Office for National Statistics
How could the new inflation rate affect food prices and bills?
How could the new inflation rate affect food prices and bills?
UK inflation slowed to 2 per cent in May, dropping to its lowest level since July 2021
UK borrowing costs set to stay the same despite inflation hitting 2% target
Borrowers hoping for some relief from higher costs are likely to be disappointed by expectations that UK interest rates will not be cut on Thursday, despite inflation returning to target.
Most economists are expecting policymakers to hold UK interest rates at 5.25 per cent when the central bank announces its latest decision.
The announcement will come a day after official figures showed that inflation returned to the 2% target last month, for the first time since July 2021.
UK borrowing costs set to stay the same despite inflation hitting 2% target
Most economists are expecting policymakers to hold UK interest rates at 5.25% when the central bank announces its latest decision.
What are interest rates?
An interest rate tells you how high the cost of borrowing is, or high the rewards are for saving. If you’re a borrower, the interest rate is the amount you are charged for borrowing money.
This is shown as a percentage of the total amount of the loan. The higher the percentage, the more you have to pay back, for a loan of a given size.
If you’re a saver, the savings rate tells you how much money will be paid into your account, as a percentage of your savings. The higher the savings rate, the more will be paid into your account for a given sized deposit.
How does inflation affect interest and mortgage rates?
How does inflation affect interest and mortgage rates?
Hopes have been raised that lower levels of inflation will mean interest rates cuts and in turn lower mortgage costs
Research finds horrifying cost of a pint in 2040 if inflation stays at recent levels
Drinkers may need to spend a small fortune on a trip to the pub by 2040, according to new research analyising the potential cost of a pint in the future.
Soaring inflation has seen the average cost of a lager go up by 11 per cent over the past 12 months.
If that rate were to be maintained for the next 16 years then a pint would cost an eye-watering £24.91 by 2040 - nearly enough to buy 36 cans of 440ml Carlsberg from Tesco.
Research finds horrifying cost of a pint in 2040 if inflation stays at recent levels
Lager prices have soared 11% in a year - but there could be even worse news for drinkers around the corner
Rates decision at lunchtime
Good morning and welcome to the Independent’s coverage of interest rates.
The Bank of England is set to announce later whether or not it will cut rates after inflation fell back to 2 per cent on Wednesday.
Analysts expect rates to be held at 5.25 per cent despite the drop in rising prices.
A decision is expected around lunchtime - stay tuned for the latest updates.
Recap: Inflation returns to 2% target for first time in nearly three years
Inflation has returned to the 2% target for the first time in almost three years in what comes at a critical time, just weeks before the nation heads to the polls.
The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation fell to 2% in May, down from 2.3% in April.
Full report:
Inflation returns to 2% target for first time in nearly three years
The Office for National Statistics said Consumer Prices Index inflation fell to 2% in May, down from 2.3% in April.
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