Cost of living correspondent
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The Bank of England is likely to maintain its current interest rates during the upcoming policy announcement.
In early May, the Bank decreased the rate to 4.25%, indicating potential further reductions in the future.
Analysts predict that additional cuts won’t happen until later in the year due to persistent inflation rates above the target.
The Bank rate serves as a crucial standard for lenders determining borrowing costs and for banks and building societies setting savings returns.
The Monetary Policy Committee (MPC) will reveal their decision at 12:00 BST.
The recent cut from 4.5% to 4.25% marked the fourth reduction within a year.
Despite anticipating a continuation of rate reductions, the committee must navigate various complex and conflicting challenges.
The UK’s economic growth continues to lag, increasing the pressure on policymakers to reduce rates and stimulate investment and growth.
Unexpectedly, the economy contracted by 0.3% in April, impacted by rising taxes for businesses, soaring household bills, and a slump in US exports.
Nonetheless, inflation held steady at a year-high of 3.4% in May.
Food prices surged, adding to the strain on household budgets.
The Bank’s primary strategy for containing inflation is through managing interest rates, which can limit demand and consequently reduce inflation, though this also affects the economy.
The influence of global tensions will also be in focus. The ongoing conflict between Israel and Iran could lead to escalated oil prices.
This would not only affect fuel costs for consumers but also significantly impact inflation levels.
Additionally, repercussions from US tariff policies will play a role in their assessments.
Many economists forecast two more rate cuts from the Bank this year, while others predict just one.
“We expect inflation to linger above 3% for the rest of the year amid ongoing wage growth and inflationary pressures from increased government spending,” stated Monica George Michail, an associate economist at the National Institute of Economic and Social Research.
“The current Middle Eastern tensions add to economic uncertainty. Thus, we anticipate the Bank of England will hold rates steady this Thursday and implement only one further cut this year.”
Impact on You
Expectations surrounding the Bank’s base rate heavily influence what high street banks and lenders charge for loans or offer to savers.
The higher rate within recent years has caused increased borrowing costs for mortgages and loans, while savers have benefited from improved returns.
Over 80% of customers are on fixed-rate deals, encountering higher bills when renewing recently.
Fixed mortgage rates have remained relatively stable in recent weeks. As of now, the average rate for a two-year fixed mortgage stands at 5.12%, while for a five-year term, it’s at 5.10%, according to data from Moneyfacts.
Approximately 600,000 homeowners have mortgages linked to the Bank’s rate, meaning any rate reduction would directly affect their monthly payments.