Andrew Bailey, the Governor of the Bank of England, has stated that more evidence is required to confirm that price increases have declined further before the interest rates are reduced. Despite rates being held at 5.25%, Bailey said that he is optimistic that the decrease in rates will come soon, as inflation is expected to fall close to its goal in the next few months. This anticipates an interest rate cut as early as June this year. Rates are currently at their highest point in 16 years, with people paying more for loans and mortgages, but savers receiving better returns on their deposits.
Bailey added that the Bank needs encouraging news on inflation, which currently stands at 3.2%, but is not certain yet that it will stay low, which is why it needs time to gather more evidence. He believes, however, that it is likely that the Bank will cut bank rates over the coming quarters, perhaps more than the financial markets are currently expecting to. The Monetary Policy Committee, the nine-strong team that votes on rates, are edging closer to a rate cut, with two members currently wanting to reduce rates and the remaining seven choosing to hold.
The Bank’s most recent forecast predicts that inflation will fall to its goal of 2% in the coming months, and to 1.9% by 2026. Economic growth is expected to be 0.4% for the first three months of 2024 and 0.2% from April to June. The Bank hopes to encourage individuals to cut back spending by making borrowing more expensive, leading to demand for goods to fall and the easing of price rises. High interest rates can restrict growth and have a negative impact on the economy, as businesses hold off on investing in production and jobs.
The health of the UK economy is currently in the spotlight with economic policies likely to be a central point of debate as parties campaign for the upcoming election, expected by the end of this year. Labour has criticised the government for “gaslighting” the public over the state of the economy, while Prime Minister Rishi Sunak believes that 2024 will be the year the economy bounces back. Though Bailey believes that the Bank needs more evidence to decrease interest rates, the potential for change in the coming quarters could prove advantageous for those paying off loans and mortgages
Read the full article from The BBC here: Read More