The base rate is currently at 4.75% after it was cut from its previous high of 5.25% – and the Bank of England is due to meet this Thursday to decide its next decision
The Bank of England will this week announce whether interest rates will be cut again.
The base rate is currently at 4.75% after it was cut from its previous high of 5.25%. The base rate influences how much you’re charged to borrow money – for example, if you’re taking out a mortgage – and how much interest you make from your savings.
The Bank of England meets every six weeks to decide whether to change the base rate, with its next meeting set for this Thursday – and the majority of economists and financial analysts are expecting another hold. This will be disappointing news for millions of mortgage holders, who will be hoping for another base rate cut in the not too distant future.
But ahead of their announcement, we’ll be told this Wednesday whether UK inflation has crept higher above the Bank of England 2% target once again. The Consumer Price Index (CPI) measure of inflation rose to 2.3% in the 12 months to October 2024, its first increase in three months, and up from the 1.7% that was recorded in September.
It’s expected to be confirmed this week that inflation has gone up again, and the Bank of England has previously said it predicts inflation will rise this year. Its members will also be taking wage growth into account when they meet this week. If pay rises too sharply, then it sparks worries that businesses may put up prices to offset higher wages for staff.
The latest UK wage growth data shows average weekly earnings, excluding bonuses, accelerated from 4.8% year-on-year in September to 5.2% year-on-year in October. Chris Arcari, Head of Capital Markets at Hymans Robertson, said: “Today’s release from the ONS regarding UK wage-growth data – showing average weekly earnings, excluding bonuses, accelerated from 4.8% year-on-year in September to 5.2% year-on-year in October – all but confirms that the Bank of England will leave rates unchanged.
“Inflation is expected to rise to 3% year-on-year in 2025 as the impact of the budget’s higher spending is compounded by rising energy prices. Meanwhile, core inflation and underlying service-sector inflation remain elevated. Nonetheless, we still expect the BoE to reduce rates to less restrictive levels in 2025 as the labour market slowly loosens. We expect between two and three rate cuts in 2025 – not too dissimilar to swap markets’ expectations.”
Scott Gallacher, Director at Rowley Turton, said: “Pay growth at 5.2% is a real spanner in the works for rate cuts. Strong wage growth risks reigniting inflation, as firms may hike prices to offset rising pay pressures and higher costs, including the increase in employers’ National Insurance. The Bank of England may stick to a ‘higher for longer’ stance, delaying cuts until wage growth cools. Good news for savers enjoying higher returns, but bad news for borrowers hoping for relief.”
The Bank of England also considers core inflation when making a decision on interest rates. Core inflation – which doesn’t include more volatile factors such as food or energy prices – was 3.3% in October, up from 3.2% in September. The annual rate of inflation for services in the UK – which includes businesses such as restaurants and hairdressers – was also higher in October, up 4.9% to 5%.