The Bank of England is expected to keep interest rates at a 16-year-high due to the UK falling into a recession, according to economists.
Since August 2023, the central bank has kept the base rate at 5.25 per cent after a series of consecutive rate hikes.
In the last year-and-a-half, rates were raised to mitigate the impact of a high consumer price index (CPI) rate of inflation.
Later this week, the Bank’s Monetary Policy Committee (MPC) will meet to discuss potential changes to interest rates.
Despite inflation easing to four per cent for the 12 months to January 2024, analysts believe a rate cut is unlikely to be implemented in the coming days.
Robert Wood, the chief UK economist at Pantheon Macroeconomics, outlined the likely thinking of the Bank of England ahead of this week’s announcement.
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The Bank is expected to keep interest rates at their current level after the UK fell into a "technical" recession
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He said: “The MPC focuses on the ‘tightness of labour market conditions, wage growth and services price inflation’ to judge ‘how long Bank Rate should be maintained at its current level.
“We think the data have not surprised enough to trigger a change in guidance at the MPC’s meeting on March 21.
“The Bank will continue signalling rate cuts, but with little new as regards timing. We expect the same one-six-two (cut-hold-hike) vote as last month.”
Within the last month, it was revealed that the UK economy fell into a technical recession towards the end of 2024.
Gross domestic product (GDP) for December found that the country’s economy contracted by 0.3 per cent.
A recession is defined as happening when a country experiences two consecutive quarters of negative growth.
Previously, the central bank’s MPC forecast that the UK economy would remain stagnant over the period.
According to Mr Wood, this development will likely impact the Bank’s reasoning when it comes to potentially cutting rates.
The economist added: “Overall, the data since the MPC’s last meeting confirm – rather than challenge – its forecasts.
“That is all that is needed for the Bank of England to remain on course for summer interest rate cuts.
LATEST DEVELOPMENTS:
The Bank of England base rate is at a 15-year high of 5.25 per cent GB NEWS“In February, the MPC forecast inflation would fall to 1.4 per cent at the two-year forecast horizon if it kept interest rates restrictive at 5.25 per cent.
“Policymakers just need the confidence to trust those forecasts.”
The Office for National Statistics (ONS) will announce the CPI inflation rate for the 12 months to February 2024 on Wednesday, March 20.
The following day, the Bank of England’s MPC will provide an update on the UK’s base rate.