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It is anticipated that the Bank of England will maintain interest rates at their current level on Thursday while awaiting more indications of a decrease in inflation.
The financial markets are forecasting that the base rate will stay the same at 5.25 percent for the fifth consecutive period.
Homeowners who have experienced 14 consecutive increases in their mortgage rates between 2022 and the first half of 2023, starting from 0.1% and reaching the current rate, will find this news to be a welcome relief. The sudden spike in mortgage rates has caused concern for many.
The Bank of England raised interest rates rapidly in an effort to control the inflation rate, which had risen to 11% in 2022. The goal of the BoE is to lower inflation to 2%.
The MPC, responsible for setting rates, will closely monitor Wednesday’s inflation data, which is predicted to drop to 3.5% from its current level of 4%.
In the previous month, the governor of the Bank of England, Andrew Bailey, stated that the target of 2 percent is expected to be reached in the spring. He also expressed the need for continued improvement in inflation in the services industry, salary growth, and the job market before considering lowering interest rates.
During his appearance before the Treasury Select Committee, Mr. Bailey stated that there are positive indications regarding services inflation. While it is currently above 6%, there are indications that it may be decreasing.
I believe that there may be indications that pay is decreasing to align with the lower headline inflation, which is something I would anticipate.
The supply of labor continues to be limited, this is undeniable. However, the development of these three factors is crucial.
We do not require inflation to reach its target before we decrease interest rates. Let me make it clear that this is not necessary.
“We will monitor the progress of these factors before making a decision on the appropriate duration for maintaining these restrictive policies.”
Despite the decrease in inflation, analysts predict that only one member of the Bank’s nine-person committee responsible for setting interest rates will vote for a reduction on Thursday.
Sandra Horsfield, an economist at Investec, said: “The Monetary Policy Committee (MPC) of the Bank of England will announce its next policy decision next Thursday at midday.
At this moment, it appears that the decision will be uncomplicated. As of now, the market is indicating very little possibility of a change in the policy rate next week. We agree with this assessment and anticipate that the Bank rate will remain steady at 5.25%.
Similar to the previous meeting, it is likely that there will still be noticeable differences in preferences among the members of the MPC. Based on the pattern from February (which was the first time since August 2008), we anticipate a division of votes into three groups: one member (Swati Dhingra) in favor of an immediate decrease in interest rate, potentially two members (Catherine Mann and Jonathan Haskel) supporting a hike, and the majority of members choosing to keep the rate unchanged.
According to Sarah Coles, a financial specialist from Hargreaves Lansdown, the markets were confident towards the end of last year that there would be a reduction in interest rates by the Bank of England in May or June. However, the persistently high inflation at the beginning of the year led them to reconsider this prediction.
“At this stage, May is looking highly unlikely, June is in the balance, and the market is increasingly expecting an August rate cut.”
Source: independent.co.uk
