It has been announced the Bank of England will hold the base rate at 5.25 per cent for the second time in a row after previously increasing it 14 consecutive times.
While this is no doubt better than further sharp increases, households are still struggling with higher bills including increasing mortgage payments. They will be eagerly awaiting news of when rates could come down.
However, they may be out of luck, as they are unlikely to come down any time soon, according to the Bank’s report.
It said the Monetary Policy Committee’s (MPC) latest projections indicate that policy is likely to need to be “restrictive for an extended period of time” – essentially, it will have to keep rates high.
The Bank’s Governor, Andrew Bailey has said that rates will have to remain where they are, if not higher, to get to its inflation target of 2 per cent.
“Let me be clear, there is absolutely no room for complacency. Inflation is still too high. We will keep interest rates high enough for long enough to make sure we get inflation all the way back to the two per cent target.”
Inflation currently stands at 6.7 per cent, which although much higher than its target, is much lower than its peak of 11.1 per cent last year.
Although it is expected to have dropped to 4.8 per cent in October, it is still forecast to remain higher than 2 per cent throughout 2024, reaching 3 per cent towards the end of the next year.
In fact, the Bank hinted that rates may even have to go higher in order to tame stubborn inflation.
The markets are now not pricing a rate cut until August of next year.
Bailey said: “We’ve held rates unchanged this month, but we’ll be watching closely to see if further rate increases are needed. It’s much too early to be thinking about rate cuts.”
It comes as the latest set of forecasts show the UK will see economic stagnation from now through next year until 2025.
And while it is not predicting a recession, the Bank has lowered its forecasts. Just over half of the impact of the series of rate rises since late 2021 is yet to filter across the economy, it said.
But not everyone agrees and some believe there should be rate cuts instead of stagnation.
Julian Jessop, Economics Fellow at the right-wing think-tank, the Institute of Economic Affairs, said: “Bank of England Governor Andrew Bailey is wrong to say that it is ‘much too early to be thinking about rate cuts’.
“Economic activity and inflation have both been weaker than the Bank had expected, money and credit growth have collapsed, and business surveys are already signalling recession.”
Positive Money, a group campaigning for a money and banking system which “supports a fair, democratic and sustainable economy”, also told i that the high borrowing costs currently punishing families with mortgages are simply not working.
“We definitely do not want the MPC to increase rates any more,” explains Positive Money’s head of campaigns, Hannah Dewhirst. “They’re a blunt tool for fighting the situation we’re in, and they are really an instrument of inequality,” she says.
