No fall in interest rates despite inflation hitting 2% target, Bank of England announces
(The Independent)
The Bank of England has declined to cut interest rates from their 16-year high – despite inflation finally falling to meet its target of 2 per cent.
Homeowners struggling with soaring mortgages will be forced to wait at least another two months for borrowing costs to fall, after the Bank’s nine-member Monetary Policy Committee opted on Thursday to hold the base rate at 5.25 per cent for the seventh consecutive month.
Bank of England governor Andrew Bailey had opened the door early last month to a rate cut, saying he was “optimistic that things are moving in the right direction” and that a June rate cut was an option – although by no means a certainty.
But despite data on Wednesday showing headline inflation fell from a 40-year high of 11 per cent to meet the bank’s target for the first time since July 2021 – reaching its goal quicker than the United States or euro zone – the medium-term picture is now less reassuring.
Services price inflation has fallen less than the Bank expected at the time of the last meeting – only declining to 5.7 rather than 5.3 per cent – and private-sector wage growth is almost twice the rate the Bank judges as compatible with 2 per cent inflation.
Interest rates will remain at 5.25 per cent at least until the Monetary Policy Committee’s next meeting in August.
However, financial markets have reduced bets of a rate cut happening in August. On Wednesday, they priced in only a 30 per cent chance, with a first move more likely in September and a risk of a delay until November, similar to expectations for the US Federal Reserve.
Homeowners have been badly hit by the sudden rise in interest rates. Some 1.6 million mortgage-holders will come to the end of their fixed-rate deals this year, and will face an average hike of about £1,800 annually on their repayments, the Resolution Foundation previously estimated.
Recent Bank of England figures suggested the value of outstanding mortgage balances with arrears has risen 50 per cent since 2022 to bring the total to more than £20bn.
And analysts at investment firm Hargreaves Lansdown calculated last month that the mortgage repayments of 2.1 million homeowners – one in four – will exceed 25 per cent of their disposable income by the end of this year, putting them at risk of arrears.
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