Blow to borrowers as chances of Bank of England interest rate cut next week ‘look very slim’

Blow to borrowers as chances of Bank of England interest rate cut next week ‘look very slim’

British public react to interest rates being kept at 5.25 per cent

Patrick O'Donnell

By Patrick O'Donnell

Published: 26/01/2024

- 14:06

Interest rates have been raised to 5.25 per cent by the Bank of England after a series of hikes in the past year and a half

The Bank of England is unlikely to cut interest rates in the near future as economists warn the chances “look very slim". Over the past year and a half, the central bank has raised the UK’s base rate numerous times to 5.25 per cent to mitigate the impact of inflation on the economy.

Economists forecast members of the Bank’s Monetary Policy Committee (MPC) will keep interest rates at this level for another month. The committee is next set to meet to discuss potential changes to the base rate next Thursday (February 1).

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Bank of England base rate chart shows rates paused at 5.25 per centThe Bank of England base rate has been held at 5.25 per cent GB NEWS

This means that interest rates will remain at the highest level seen in 16 years which has been a blow to borrowers, particularly those in debt and households with mortgages.

In recent months, the Consumer Price Index (CPI) rate of inflation has eased which suggests the Bank of England’s actions have been successful.

However, inflation for the 12 months to December 2023 jumped to four per cent, from 3.9 per cent the month before.

Concerns were raised by analysts as this is the first time the CPI rate has risen since February 2023 with many warning future cuts from the central bank will likely not be until the latter half of 2024.

Susannah Streeter, the head of money and markets at Hargreaves Lansdown, explained: “With inflation ticking back up in December, it’s likely to have quelled immediate urges from policymakers around the table for rate cuts any time soon.

“Given the ultra-cautious stance three of the nine members of the MPC have taken towards inflationary risks, having voted for a rate hike at the last meeting, the chances of a reduction in the base rate at this gathering look very slim indeed.”

Philip Shaw, an economist for Investec Economics, echoed this train of thought and asserted that he believes most MPC members will vote to hold the base rate at their current level.

He said this was primarily due to “more concrete signs that inflation is coming down towards the two per cent target and that the economy remained subdued”.

Man looking stressed at bill

Borrowers have been saddled with soaring repayments due to base rate hikes


However, some experts cautioned borrowers from overacting or being too nervous about the Bank’s decision to postpone a rate cut.

Andrew Goodwin, chief UK economist for Oxford Economics, said December’s surprise rise in inflation is “unlikely to worry the MPC too much”.

The economist cited the CPI rise was driven by an increase in tobacco duties and a jump in air fares which are more volatile measures.

According to him, “more reassurance that price and wage pressures are retreating to a target-consistent pace on a sustained basis before pressing the ‘cut’ button”.

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