Bank of England Maintains 5.25% Interest Rate Amidst Inflation Concerns

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The Bank of England has decided to keep the Bank Rate steady at 5.25%, marking the fifth consecutive time borrowing costs remain unchanged since August of last year, reports Andrew Michael.

The Monetary Policy Committee voted 8-1 in favor of maintaining the rate at its 16-year high, with Swati Dhingra as the sole dissenter advocating for a quarter-point rate reduction to 5%. This decision mirrors the stance of the US Federal Reserve, which also opted to keep interest rates unchanged in its recent announcement. Aligned with other central banks, the Bank of England is tasked with maintaining inflation at 2% over the medium to long term.

Despite a notable decline in annual inflation to 3.4% in February from the previous month’s 4%, the Bank remains cautious in its monetary policy decisions. The Bank cited the recent drop in headline consumer price index inflation, attributing it partly to base effects and external factors like energy and goods prices. While the restrictive monetary policy has contributed to a softer real economy and a more relaxed labor market, key indicators of inflation persistence remain elevated.

The Bank emphasized the need for a sustained restrictive monetary policy to bring inflation back to the 2% target in the medium term, aligning with the MPC’s mandate. Today’s announcement means that borrowers with variable rate and tracker mortgages and loans will not see immediate changes in their repayments. However, lenders retain the discretion to adjust variable rate products as they see fit. Meanwhile, new borrowers and those nearing the end of fixed deals will be monitoring lenders’ responses closely.

Recent days have seen various high street lenders adopting different pricing strategies for home loan products, underscoring the importance of shopping around for the best deals.

The decrease in the inflation figure allows savers to earn a ‘real’ return on cash held in bank and building society accounts, provided they seek out competitive deals. According to Moneyfacts Compare, the majority of the UK’s savings accounts offer interest rates above inflation. The MPC’s next rate-setting decision is scheduled for May 9, 2024.

Richard Carter, head of fixed interest research at Quilter Cheviot, commented on the ongoing inflationary pressures, emphasizing the significance of wage growth as a driver of inflation. Nicholas Hyett, investment manager at Wealth Club, highlighted the expectation that rate cuts would likely occur in the second half of the year, with central banks closely monitoring the US Federal Reserve’s actions. Shaun Port, managing director of savings at Chase UK, welcomed the decision to hold interest rates steady, advising savers to explore their options amidst potential future rate cuts.