London, England – The Bank of England is expected to maintain interest rates at 5.25% for the sixth consecutive time, as inflation remains above the target at 3.2%. This decision will also include the release of the latest forecasts for inflation and the UK economy. The ongoing debate over economic growth between major political parties has placed a spotlight on the health of the UK economy.
Economists anticipate that rates will remain unchanged at the current 16-year high, with a potential rate cut expected later in the summer. The Bank initially raised interest rates to address rising consumer prices and alleviate the cost of living, with the theory being that higher borrowing costs would reduce spending, leading to a decrease in demand for goods and easing price rises.
However, the delicate balance of high interest rates can negatively impact the economy as businesses hold back on investments in production and job creation. The rapid increase in prices came after the lifting of Covid-related restrictions, followed by soaring energy and food costs due to the events surrounding Russia’s invasion of Ukraine, resulting in inflation peaking at 11.1% in October 2022 – the highest rate in 40 years.
The Bank’s base rate influences the rates set by mainstream banks and lenders, affecting borrowing costs for mortgages while offering higher returns for savers. Emma Wall, head of investment research at Hargreaves Lansdown, indicated that any deviation from the expected rate hold would be surprising. She suggested that rate cuts are on the horizon, citing Sweden’s recent rate reduction as an indication of future trends in the UK and Europe.
Fiona Eastwood, Chief Operating Officer at Merlin Entertainments, expressed the industry’s anticipation for rate cuts, particularly as the hospitality sector continues to recover from Covid-related challenges. With a significant number of businesses facing financial instability, interest rates play a critical role in their survival and ability to invest in growth.
While discussions around potential rate cuts continue, policymakers believe that the UK economy may have emerged from the recession experienced at the end of the previous year. Further official figures on economic growth will be released to confirm whether the UK economy expanded in the first quarter of 2024.