The Bank of England is unlikely to cut interest rates in the near future, with economists warning that the chances of that happening “look very unlikely”. Over the past year and a half, the Bank of England has repeatedly raised the UK’s benchmark interest rate to 5.25% to ease rate cuts. The impact of inflation on the economy.
Economists expect members of the central bank’s Monetary Policy Committee (MPC) to keep interest rates at this level for another month. The committee will next meet next Thursday (February 1) to discuss possible changes to the base rate.
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This means interest rates will remain at 16-year highs, hurting borrowers, especially those with debt and households with mortgages.
Consumer Price Index (CPI) inflation has fallen in recent months, suggesting that the Bank of England’s actions have been successful.
but, Inflation for the 12 months to December 2023 rose to 4% from 3.9% the previous month.
Analysts expressed concern as it is the first increase in CPI rates since February 2023 and many warn that future rate cuts by the central bank are likely to last until late 2024.
Susannah Streeter, head of finance and markets at Hargreaves Lansdown, said: “With inflation trending up again in December, there are immediate calls for policymakers around the table to cut interest rates soon. There is a high possibility that this impulse will subside.”
“Given that we voted in favor of rate hikes at the last meeting and that three of the nine members of the MPC took a very cautious stance on inflation risks, we believe that the benchmark interest rate will be lowered at this meeting. It certainly seems very unlikely.”
Philip Shaw, an economist at Investec Economics, echoed this view, saying he believed most MPC members would vote to keep the benchmark interest rate at its current level.
He said this was mainly due to “inflation coming down towards the 2% target and more concrete signs that the economy remains weak.”
Borrowers are suffering from soaring repayments due to the increase in base interest rates.
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But some experts warned borrowers not to overact or get too sensitive about the Bank’s decision to postpone the rate cut.
Andrew Goodwin, chief UK economist at Oxford Economics, said it was “unlikely for the MPC to be overly concerned” about December’s unexpected rise in inflation.
The economist said the rise in CPI was caused by higher tobacco duties and a more volatile measure, higher airfares.
“Before hitting the ‘retrench’ button, it gives us greater comfort that price and wage pressures have retreated to a sustained pace that is consistent with our targets,” he said.