The Bank of England is set to reveal its decision on interest rates, with experts predicting that rates will be kept unchanged at 5.25%. This comes against a backdrop of sluggish economic growth, coupled with signs of a declining job market. Previously, rates had been raised as a way to combat rising prices and are now at their highest level in 15 years.
Higher interest rates can lead to an increase in the cost of borrowing money for mortgages and other loans, however, it also means higher returns on savings accounts. The Bank of England has increased interest rates since December 2021 in an effort to reduce inflation in the UK, which has been much higher than usual, resulting in financial pressure on households. Currently, inflation is at 6.7%, which is more than three times higher than the Bank of England’s target of 2%.
The Bank is hoping that this increase in the cost of borrowing money will lead to households cutting back on purchases, resulting in businesses slowing their price rises. However, if rates go up too quickly, consumers and businesses may reduce their spending, and this can lead to a recession. The UK is not in a recession presently, although there are concerns around weak growth, and the economy is anticipated to be a critical area for next year’s general elections.
In the weeks leading up to the Bank of England’s decision, data on the economy fueled analysts to predict that the rates would remain unchanged for a second time. Despite Investec economist Sandra Horsfield noting that rates could still be increased, she added that “the case for raising rates further now look [ed] somewhat weaker to us than at the last meeting.
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