Energy

UK borrowing costs held at 5.25% as Bank of England downgrades economic outlook



UK interest rates have been held at 5.25%, providing some relief for borrowers, as the Bank of England downgraded its forecast for economic growth and said inflation could stay higher for longer.

Governor Andrew Bailey warned it is “much too early” to think about cutting rates, as the Monetary Policy Committee (MPC) voted by a six-three majority to keep the base rate at 5.25%.

Three members preferred to increase rates to 5.5%.

“We’ve held rates unchanged this month, but we’ll be watching closely to see if further rate increases are needed,” Mr Bailey said.

In new economic projections produced by the MPC, the UK economy is expected to flatline next year with 0% growth over 2024, down from a 0.5% increase predicted in the August report.

The outlook for this year remains the same, with gross domestic product (GDP) expected to grow 0.5%.

The Bank, which uses interest rates as a tool to bring inflation down to its 2% target, said price rises have been slowing more rapidly than previously expected.

Energy, food, and goods prices are acting as the biggest drag on inflation.

The MPC now thinks Consumer Prices Index (CPI) inflation will drop sharply to about 4.6% over the final three months of 2023 – meaning Prime Minister Rishi Sunak will be well within his target to halve inflation by the end of the year.

CPI will then average about 3.3% in 2024, higher than the 2.5% predicted in August, before returning to target by the end of 2025, later than previously thought.

More than half of the impact of the Bank’s two-year-long cycle of increasing rates is still set to come through the economy, largely through housing investment as well as on household spending, the MPC said.

Many mortgage-holders who are due to reach the end of their fixed-rate deals have already started adjusting their spending in anticipation of higher costs.

The Bank’s decision comes after the US Federal Reserve also opted to hold interest rates steady on Wednesday, in a sign that it thinks inflationary pressures are easing.



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