The Bank of England kept the interest rate at 5.25% today, giving more relief to millions of homeowners and businesses under severe pressure. Members of the bank’s Monetary Policy Committee, chaired by Governor Andrew Bailey, voted 6-3 to keep the cost of borrowing at its current level.
Recommended by This was the second consecutive MPC meeting when interest rates were left unchanged, after 14 consecutive hikes since December 2021. This time the stabilization majority was larger than the sharp 5-4 split in September.
The decision, which was consistent with the financial district’s expectations, will boost hopes that the swing rate hike cycle has now peaked and that the next step will be downwards. The MPC has raised interest rates aggressively over the past two years in a long struggle to rein in inflation. The consumer price index stood at 6.7% in September, unchanged from August, but well below October’s peak of 11.1%. The bank has an inflation target of 2%.
A significant drop in the CPI is expected when the October figure is released later this month as a result of the maximum energy bill falling sharply from an average of £1,976 to £1,834.
The rise in interest rates has dealt a heavy blow to the economy as property prices have fallen, the homebuilding sector has seen a significant drop in demand, and corporate insolvencies are now at their highest rate since 2009.
Andrew Hager, a personal finance expert from Moneycomms, said: “The monthly increases in the base interest rate may have stopped, but the pressure of the cost of living has not gone away – increasing energy costs, rising prices in pumps and rising mortgage rates mean there is little comfort for the household budget at the moment.”
Sterling rally after Bank of England decision reduces EUR/GBP losses
After the Bank of England meeting, the pound gained momentum. The EUR/GBP pair trimmed daily losses and moved lower towards 0.8700.
Following the decision, the pound strengthened across all sectors. The EUR/GBP pair pared gains and fell from 0.8725 to 0.8707. However, the pair remains in positive territory for today and above the level of 0.8700.
EUR/GBP has an immediate support zone around 0.8700, and if this level is broken, it will reveal the next support zone at 0.8680. This level is crucial as it has served as a significant barrier to further downward movement over the past two weeks. Continued move below 0.8680 should boost outlook for GBP.
Upside, if the pair manages to stay above the daily high of 0.8725, the next resistance zone to watch is at 0.8740. Moreover, October’s high of 0.8754 becomes the next important level.
Bank of England forecast: Growth slows and inflation falls
The bank cut its growth forecast for this year, next year and 2025, with zero growth expected in 2024. He said he expects inflation to fall rapidly in the coming months, falling below 5% in October (figures for which will be published later this month) and around 3% by the end of next year..
The nine-person Monetary Policy Committee voted 6-3 to leave interest rates unchanged – the second in a row pause after fourteen consecutive rate hikes.
In the minutes issued alongside the decision, he noted that although the economy is struggling in the face of sharply rising borrowing costs, it is unlikely to reduce them for some time..
“The MPC’s latest forecast indicated that monetary policy is likely to need to be constrained for an extended period of time,” the minutes of the meeting read. “Further tightening of monetary policy will be needed if there is evidence of continued inflationary pressures..”
The bank’s analysis suggests that just over half of the pain caused by interest rates has not yet been felt among households, as many of them remain on low mortgage rates and will see their monthly payments rise in the coming months and years as they repay. Fix their trades.
However, the bank said higher interest rates are increasingly weighing on the economy, with lower investment, lower consumer spending, and lower housing spending..
Governor Andrew Bailey said: “High interest rates are successful and inflation is falling. “But we need to see inflation continue to fall until our 2% target is reached. We’ve kept interest rates unchanged this month, but we’ll be watching closely to see if further rate hikes are needed.
The impact of interest on mortgage and loan holders in the UK
Currently, the average two-year fixed interest rate is 6.3 per cent and the five-year fixed rate is 5.87 per cent.
Labour has warned that 630,000 homeowners face rising mortgage costs ahead of local elections in May next year, weighed down by higher borrowing costs due to higher interest rates. Based on figures from the Office for National Statistics, the analysis indicated that more than 3,400 households will remortgage daily during the six months between November 2 and May 1, 2024. But how much people are affected by today’s decision depends on the type of home loan you have.
Tracking tools are a type of loan that actually tracks the bank’s base rate, with interest added at the top. If you use one, your payments will remain the same – and that will undoubtedly come as a relief after a difficult 18 months..
Standard Variable Rate (SVR) mortgages. Around 9 per cent of customers benefit from these services – and they do not have to follow the interest rate set by the Bank of England, although they generally do. Pause means they are unlikely to see an increase.
About 81 percent of people have this type of mortgage, where the interest rate is locked for a specific period of time – usually two or five years – so if you’re on this type of loan, your repayment payments won’t change based on today’s interest rate announcement..
A two-year deal may be your best bet, even if it’s a little more expensive than a five-year deal, as many hope that interest rates will drop dramatically by the end of the two years and be fixed for longer thereafter.