Decision Expected At First Meeting Of The Year
Interest rates are expected to remain unchanged as the Bank of England’s Monetary Policy Committee meets for the first time this year, with most analysts forecasting that the Bank rate will stay at 3.75% when the decision is announced at 12:00 GMT on Thursday.
The committee cut the Bank rate from 4% to 3.75% in December and said at the time that rates were “likely to continue on a gradual downward path.” The Bank rate is the main tool the MPC uses to try to keep inflation, which measures the annual pace of rising prices, close to 2%. It strongly influences the interest charged by lenders on loans and mortgages and the returns banks and building societies offer to savers.
Inflation And The Policy Balance
Inflation remains above the target, standing at 3.4% based on the latest data for the year to December. The nine-member committee only narrowly voted for a cut in December and offered a cautious assessment of the outlook.
Analysts say there has been little new data so far this year to shift the balance between persistent inflation and weak economic growth. There is also an expectation that the Bank will avoid giving precise guidance on when or by how much it might cut rates during the year, as it waits for clearer signals on inflation.
Some analysts expect one rate cut during 2026, while others think the MPC could opt for two cuts.
Impact On Mortgages And Borrowers
Around one third of households have a mortgage. Of those, about one million are on tracker or variable-rate deals, which usually change when the Bank rate moves.
Most mortgage customers are on fixed-rate deals. Their monthly payments do not change immediately when the Bank rate changes, but future deals can be affected. Fixed mortgage rates for people renewing or taking out new deals fell at the start of the year as lenders competed for customers.
However, commentators say broader pressures on lenders have begun to rise, and that could slow or halt further reductions in fixed rates.
Savings Rates And Consumer Returns
The December cut in the Bank rate and the conditions that followed have led savings providers to reduce the interest paid to customers. Rachel Springall, from financial information service Moneyfacts, said that “the slaughter of savings rates will sadden hard-pressed savers.”
She said that since the start of the year, more than two thirds, or 70%, of savings providers have cut their rates. “As inflation remains well above target, real returns on cash savings are weak and this can lead to a dangerous attitude of apathy,” she said.
Next Steps And Economic Outlook
The MPC holds eight meetings a year. After this meeting, it will also publish its quarterly Monetary Policy Report, which sets out the economic analysis and projections that inform its decision.
Featured image credits: Matt Buck via Wikimedia Commons
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