The Bank of England is predicted to cut interest rates in a matter of days in a boon for homeowners and debt borrowers.
On Thursday (August 1), the central bank’s Monetary Policy Committee (MPC) will confirm the latest base rate update.
Interest rates have been raised, and held, at 5.25 per cent in an attempt to mitigate the impact of inflation.
Since May 2024, the consumer price index (CPI) has eased and remained at two per cent which is the Bank of England’s desired target.
However, the financial institution has stopped short of slashing the base rate despite this achievement.
While savers have benefited from bolstered interest rates, mortgage and debt repayments have skyrocketed as a result.
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James Smith, a developed market economist for ING, believes relief for mortgage holders is on its way but it will be a “close call”.
He shared that he expects a majority of policymakers to vote in favour of a 0.25 percentage point rate cut which will slash the base rate to five per cent.
According to the economist, services inflation remains the “guiding light for Bank of England policy” currently.
Smith explained: “More recently, services inflation has been propped up by a spike in hotel prices,” he said, suggesting that the Bank could be less concerned by the “highly volatile” nature of the data.
“The bottom line is that there is just about enough in the recent data to give the Bank confidence to begin lowering rates.”
Sanjay Raja, senior economist for Deutsche Bank, also believes interest rates will be brought down this week but noted the “delicate balance”.
He added: “With the bank rate held steady for the better part of a year now, risk management considerations may be shifting from having done ‘too little’ to ‘too much’.”
Raja expects Bank of England Governor Andrew Bailey to be among those members of the MPC choosing to slash rates.
However, not all experts are pricing in an immediate interest rate cut on Thursday.
Andrew Goodwin, the chief UK economist at Oxford Economics, is confident the base rate will continue to be at a 16-year high for the foreseeable future.
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The Bank of England should not wait any longer and take actionPA
He cited financial markets pricing in a September cut with the central bank unlikely to want to spook investors.
Goodwin explained: “The MPC hasn’t gone against the market consensus since November 2021.
“Though not completely beholden to markets, we think the MPC would prefer to take markets with them rather than take them by surprise, particularly if there is little urgency.”
Experts from Pantheon Macroeconomics agreed that policymakers will keep rates on hold in August but “signal they expect to cut rates in the coming months”.