The Bank of England is Expected to Maintain Current Interest Rates.

The Bank of England is anticipated to keep interest rates unchanged during its meeting later today. Most analysts expect the benchmark rate to remain at 4.75% when the decision is revealed at 12:00 GMT. This follows a rise in inflation for the second consecutive month, reaching 2.6% in the year leading to November, exceeding the Bank’s target of 2%. In November, Governor Andrew Bailey indicated that rates would likely decrease in the future, though he emphasized that any changes would be gradual.

What are Interest Rates? A Quick Guide

The Bank of England adjusts interest rates to manage inflation, which reflects the rate at which prices rise. Raising interest rates makes borrowing more expensive, reducing consumer spending and encouraging savings. This, in turn, lowers demand for goods and slows price increases. However, raising borrowing costs comes with risks, such as slowing economic growth. For example, businesses may borrow less, leading to fewer jobs and reduced investment.

The Bank’s Monetary Policy Committee (MPC) lowered interest rates from 5% to 4.75% in November, marking the second reduction in 2024. However, with inflation rising and wage growth accelerating, it’s likely the Bank will maintain the current rate for a longer period. Paul Dales, chief UK economist at Capital Economics, said that the higher inflation in November makes it unlikely for the Bank to cut rates on Thursday, adding that domestic inflation pressures are stronger than expected.

Capital Economics predicts that inflation will decrease in December but rise again in January. However, it expects inflation to approach the Bank of England’s 2% target by the end of next year.

The UK Inflation Rate has Reached its Highest Level in 8 Months.

The Bank’s base interest rate significantly affects the rates charged by High Street banks and other lenders for loans and credit cards. Lenders have largely factored in the potential impact of holding or cutting the base rate when setting their own interest rates.

Mortgage rates remain considerably higher than in most of the past decade. The average two-year fixed mortgage rate is currently 5.04%, while a five-year fixed mortgage deal has an average rate of 4.14%, according to financial data provider Moneyfacts.