Borrowers expecting costs to come down will have to wait longer, as Bank of England governors are poised to wait for more compelling indications that the cost-of-living crisis has eased.
Bank of England Expected to Maintain Interest Rates Amidst Speculation of Easing Measures
BoE's Monetary Policy Committee (MPC), which is responsible for setting the level of UK interest rates, will announce its latest decision this Thursday.
Nevertheless, economists are anticipating the rates to be kept at the current 5.25% level, which remained stable since August 2023. This means that the time for easing cost-of-living pressures is yet to come.
During the last March meeting, only one member of the MPC, Swati Dhingra, opted for cutting interest rates by a 0.25 percentage points, the remaining eight members voted for no change.
Philip Shaw, chief economist at Investec, stated: “This broad direction illustrates that collectively the committee is moving gradually towards a rate cut.
“It seems unlikely though to be ready to bite the bullet just yet and the Bank rate looks set to remain on hold at 5.25 per cent for the sixth consecutive meeting.”
He also discussed the possibility of having another member of the MPC switch to the "easing side" and vote for rates to be cut next Thursday.
Interest rates are used as a means to bring UK inflation down, which has fallen considerably from 2022's levels when energy prices spiked and the cost-of-living crisis reached record highs.
Bank of England Weighs Interest Rate Cut Amidst Mixed Economic Indicators
According to the latest official figures, consumer Price Index (CPI) inflation fell to 3.2% in March.
However, experts suggested that two key economic indicators for the Bank of England, which include: pay growth and services sector inflation, have remained stronger.
Average wages carried on increasing faster than the inflation rate last month.
Andrew Goodwin, chief UK economist for Oxford Economics, stated: “The data published in mid-April for services inflation and private sector regular pay growth has likely extinguished any remaining hopes of a move in May.
“Though both measures have continued to fall, progress has been slightly slower than the MPC anticipated, and they are currently running marginally higher than the forecasts published in February’s Monetary Policy Report.”
He added that it is likely to be a “close call” on whether the MPC decides to cut rates in June or August.
Mr Shaw from Investec said he anticipates CPI inflation to have dropped to the 2 per cent target level in May, which would encourage the MPC to slash interest rates to 5 per cent during their next meeting in June.
HSBC economists are also expecting the first-rate cut to occur in June.
The Bank of England will put more emphasis on its predictions for the economy and the path of interest rates when it announces the latest Monetary Policy Report alongside the rates decision next Thursday.
In the meantime, the American central bank, the Federal Reserve, declared on Wednesday it was keeping its key interest rate at the same level and noted a “lack of further progress” towards lowering inflation.
This means that rates could remain higher for longer until there is enough evidence of price rises easing, as suggested by its chairman Jerome Powell.