The Bank of England is set to keep interest rates at the current level despite inflation falling to the 2 per cent target for the first time in nearly three years.
The UK central bank is expected to freeze interest rates at 5.25 per cent on Thursday after steadily increasing interest rates since 2021 in an attempt to bring down inflation.
It comes after the Office for National Statistics revealed that the Consumer Price Index fell to 2 per cent in May, down from 2.3 per cent in April.
The new figure marks the first time inflation has reached the Bank of England’s target since July 2021, before the cost of living crisis sent inflation soaring – at one point reaching levels not seen for 40 years.
The Confederation of British Industry (CBI) said the way is now clear for the bank to cautiously cut interest rates in August.
“Today’s data sets the stage for the MPC to cut interest rates in August, in line with our latest forecasts,” CBI chief economist Martin Sartorius said on Wednesday.
Conclusion: Inflation returns to the 2% target for the first time in nearly three years
Inflation has returned to the 2% target for the first time in nearly three years at a critical time, just weeks before the country heads to the polls.
Matt Mathers20 June 2024 at 07:52
Price decision at lunchtime
Good morning and welcome to The Independent’s interest rates coverage.
The Bank of England is scheduled to announce later whether or not it will cut interest rates after inflation fell to 2 percent on Wednesday.
Analysts expect interest rates to remain at 5.25 percent despite the decline in high prices.
A decision is expected around lunchtime – stay tuned for the latest updates.
Matt Mathers20 June 2024 07:33
Research has found a shocking cost per pint in 2040 if inflation remains at recent levels
Wine drinkers may need to spend a small fortune on a trip to the pub by 2040, according to new research analyzing the likely cost of a pint in the future.
Rising inflation has seen the average cost of beer rise by 11 per cent over the past 12 months.
If this rate is maintained over the next 16 years, a pint will cost £24.91 by 2040 – roughly enough to buy 36 440ml cans of Carlsberg from Tesco.
Alexander Butler20 June 2024 at 07:00
How does inflation affect interest and mortgage rates?
Alexander ButlerJune 20, 2024 at 06:00
What are interest rates?
The interest rate tells you how expensive it is to borrow, or how high the rewards are for saving. If you are a borrower, the interest rate is the amount you are charged for borrowing money.
This is shown as a percentage of the total loan amount. The higher the ratio, the more you have to pay for a given loan 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 deposit of a certain size.
Alexander Butler20 June 2024 at 05:00
UK borrowing costs are set to remain unchanged despite inflation reaching the 2% target.
Borrowers hoping for some relief from rising 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 expect policymakers to keep UK interest rates at 5.25 per cent when the central bank announces its latest decision.
This announcement comes a day after official figures showed that inflation returned to the 2% target last month, for the first time since July 2021.
Alexander Butler20 June 2024 at 03:00
How might the new inflation rate affect food prices and bills?
Alexander ButlerJune 20, 2024 at 02:00
Inflation fell to the Bank of England’s 2% target for the first time in nearly three years
Inflation fell 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.
Office for National Statistics figures show the Consumer Price Index fell to 2 per cent in May, from 2.3 per cent in April.
The new figure marks the first time inflation has reached the Bank of England’s target since July 2021, before the cost of living crisis sent inflation soaring – at one point reaching levels not seen for 40 years.
Alexander ButlerJune 20, 2024 at 01:00
What did the economists say?
Experts have warned that a rate cut this summer may be less likely until a majority of the bank’s Monetary Policy Committee feels confident that inflation is under control.
Significantly, services inflation, which only looks at service-related categories such as hospitality and culture, and is a key measure for policymakers, has remained more stubborn than expected.
“In fact, at 5.7 per cent, services inflation is now 0.4 percentage points higher than the bank forecast in its May monetary policy report,” said James Smith, a senior economist at ING.
“This confirms that the Bank of England will keep interest rates unchanged on Thursday. We therefore stand by our call for a first rate cut in August, for a total of three cuts this year.
Laura Sutter, director of personal finance at AJ Bell, added: “It is very likely that the bank will want to wait to see the outcome of the election and final economic plans before making this first cut.
“With no meeting in July, this means that all eyes are now firmly on the Monetary Policy Committee meeting in August for a potential first rate cut.”
Alexander ButlerJune 20, 2024 00:01