UK borrowers might have to wait longer for interest rate cuts as the Bank of England's (BoE) Monetary Policy Committee (MPC) is expected to maintain the current rate of 5.25% in its upcoming decision.
This rate has remained unchanged since August last year. The decision reflects a cautious approach, pending clearer signs that the cost of living crisis is abating.
Despite a significant drop in inflation, with the Consumer Prices Index (CPI) falling to 3.2% in March from last year's highs during the energy crisis, the MPC appears hesitant to reduce rates immediately. At their last meeting, only one out of nine MPC members voted for a rate cut. This caution is driven by persistently high levels in two crucial economic indicators: pay growth and services sector inflation. Wages have continued to rise faster than inflation, suggesting sustained price pressure.
Economists anticipate the first rate cut could occur as early as June, pending further economic indicators. The BoE will provide more details on its economic forecasts and the anticipated trajectory of interest rates in its forthcoming Monetary Policy Report, to be released alongside the rate decision.
In parallel, the Federal Reserve in the US has also decided to maintain its key interest rate, citing a "lack of further progress" in reducing inflation. Fed Chair Jerome Powell indicated that rates in the US might remain elevated until more definitive evidence of declining inflation emerges.
Talk to us about your finances.
