Influencer Editorial Team
The Bank of England has hinted at the possibility of reducing interest rates in August, which would be the first cut in borrowing costs in over four years. On Thursday, the Bank decided to maintain interest rates at a 16-year high of 5.25% in a closely contested vote.
Earlier in the week, data revealed that inflation had slowed to 2% in May, aligning with the Bank of England’s target. Despite this, some prices continued to rise faster than anticipated. Minutes from the Bank’s rate-setting committee meeting suggested a significant shift in perspective, indicating that a majority might vote for a rate cut at their next meeting on August 1.
The committee stated they would assess whether concerns are “receding” and review the duration for which the current bank rate should be maintained. This language signals to markets and the public that after completing new economic forecasts, a rate cut is the most likely outcome.
The rate-setting committee’s vote to hold rates was 7-2, showing a narrower margin than previous decisions. Three members, including Bank of England governor Andrew Bailey, found the decision to hold rates “finely balanced,” suggesting a leaning towards a rate cut.
This decision comes ahead of the general election, where economic policies are a major point of contention. However, the Bank emphasized that the timing of the election was “not relevant to its decision.”
The Bank of England’s interest rate impacts mortgage, credit card, and savings rates for millions across the UK. Although the Bank hints at a possible rate cut in August, many homeowners nearing the end of fixed-rate deals are facing higher mortgage rates than before. The current average rate for a two-year fixed deal is 5.96%, down from last year’s peak of 6.86%.
Bank governor Andrew Bailey remarked, “It’s good news that inflation has returned to our 2% target. We need to be sure that inflation will stay low, and that’s why we’ve decided to hold rates at 5.25% for now.”
The Bank of England operates independently from the government, with its primary role being to maintain inflation at a stable 2%. In recent years, the Bank has raised and maintained high interest rates in response to elevated inflation. While increasing rates is intended to curb inflation, it can also slow economic growth as businesses may delay investment or hiring, potentially leading to fewer job creations.
