When policymakers make their latest announcement on Thursday, it is usually expected that the Bank of England will leave interest rates where they are.
The level maintained by the central bank matters profoundly to the price of lending to the government, companies, and individuals along with the saver rewards. It was lowered to 4.5% from 4.75% during the recent meeting of the Monetary Policy Committee (MPC) in February.
While there is no indication of further change in this announcement, most financial analysts see two more rate cuts ahead before the year’s end.
A Decision with Far-Reaching Effects
The five female and four male MPC members, all economists and senior Bank of England officials, are led by Governor Andrew Bailey. All the members’ votes will be carefully watched by markets since the committee’s decisions determine everything from the rates on mortgages to business investments.
The main task of the committee is to control interest rates so that inflation is kept in line with the government’s 2% target. Latest data show that inflation rose to 3% in January, and most experts expect that rates will stay put for the time being.
Slowing interest rates too quickly may actually spur more spending by consumers and could push inflation up. It may not be good news for homeowners who expect more cuts to mortgage rates.
Bank of England policymakers have been sounding the alarm on inflation and residual uncertainty, so more rate-cutting relief for homeowners appears to be an unlikely outcome of this month’s meeting,” said Paul Heywood, Equifax UK’s chief data and analytics officer.
The Future of Interest Rates
While mortgage rates have been gradually falling, this is more than anything to do with anticipation of further cuts to come later in the year. Since August 2024, the MPC has lowered rates three times, to their lowest mark in 18 months. But the Bank has always indicated a cautious and restrained approach to further decreases.
Lower interest rates favor borrowers by making loans and credit card balances less expensive, but they also make returns on savings accounts lower. Therefore, any changes must ensure that they weigh economic growth and financial stability appropriately.
Economic Outlook and External Factors
The wider economic environment will have a significant bearing on future rate decisions. In February, the Bank cut in half its 2025 economic growth forecast to 0.75%, from an initial 1.5% forecast. Its 2026 and 2027 forecasts, however, were marginally upgraded.
Inflation will be up to 3.7% this year, the Bank forecasting that it will not be until late 2027 before inflation is back to its 2% target.
There are variables both domestically and internationally that feed into economic uncertainty. While it is unlikely to introduce fundamental policy shifts, Chancellor Rachel Reeves’ Spring Statement next week will provide a guide to the Office for Budget Responsibility’s formal economic forecast. Government spending allocations will also be outlined in the statement.
In addition, the UK economy remains indirectly affected by global trade policies such as US tariffs. The Bank of England is expected to be cautious in the light of these considerations, ensuring that any future interest rate adjustment responds to both domestic economic conditions and more widespread international influences.
