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The Bank of England’s Monetary Policy Committee (MPC) is anticipated to keep interest rates unchanged during its first meeting of the year. The key tool the committee utilizes to manage inflation—which tracks how prices rise annually—is the Bank rate, with the goal of maintaining inflation near the 2% target. This rate serves as a significant influence on the costs lenders charge for loans and mortgages, as well as the returns savers receive from banks and building societies.
Most experts expect that the MPC will maintain the Bank rate at 3.75% when it announces its decision at noon GMT on Thursday. Recent figures indicate that inflation remains above the target, standing at 3.4% for the year ending December. In December, the nine-member committee narrowly voted for an interest rate cut and adopted a cautious stance on economic conditions. Early data from this year have not shifted the delicate balance between persistent inflation pressures and sluggish economic growth, according to analysts.
Looking ahead, there is speculation that the Bank will provide limited guidance on the timing or scale of any future rate reductions until the inflation outlook becomes clearer. Some analysts predict a single rate cut during 2026, while others suggest there could be two. This uncertainty reflects the ongoing challenge of navigating inflation dynamics without stifling economic stability.
Regarding how interest rates impact household finances, roughly one-third of UK households have a mortgage. Among these, about one million hold tracker or variable-rate mortgages, which typically adjust in line with changes to the Bank rate. Most mortgage holders, however, are on fixed-rate deals, meaning their current payments won’t immediately change when the Bank rate moves, although the rates available on new or renewed deals can be affected. Early in the year, fixed mortgage rates declined as lenders competed for borrowers, but rising pressures on lenders might slow any further reductions. Following the Bank’s rate cut in December, interest paid by savings account providers has also dropped. Rachel Springall from Moneyfacts commented, “The slaughter of savings rates will sadden hard-pressed savers. Since the start of this year, more than two-thirds (70%) of savings providers have cut their rates. As inflation remains well above target, real returns on cash savings are weak and this can lead to a dangerous attitude of apathy.” The MPC convenes eight times annually and will release its quarterly Monetary Policy Report after this meeting, detailing the economic analysis and forecasts underpinning its decisions
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