Interest Rates to Stay Put For Now
With the level of inflation dipping by 0.1% in August, the Bank of England has decided to maintain the current level of interest rates. Price rises have been slowing more quickly than anticipated, so the Bank Rate has stayed put at 5.25% for now. Economists were divided on whether this was going to increase to 5.5%.
Andrew Bailey, Bank of England Governor, has stressed that it is still too early to consider lowering interest rates. The rate of inflation is going down, but a longer, more sustained decrease needs to be met before they consider easing the pressure on the public. At the deciding meeting, 4 of them voted for an increase while 5 of them opted to sustain rates at the current level.
For anyone on a tracker mortgage, which fluctuates with the interest rate, payments will not be going up. This will be welcome news as they’ve had their mortgage payments rise over the last year. For anyone coming to the end of a fixed rate deal, they will be changing to a higher rate and seeing more go towards their mortgage payments every month.
Seeing as interest rates have stayed put for now, banks and building societies may be more tempted to put better deals out on the market. However, the country could be heading towards a sustained level of 5.25% for some time, meaning rates may not greatly improve for a while.
On the plus side, savings interest rates have gone up, but not by much. Anyone looking for a good deal on their savings should shop around to find what would work best for them. If this is the plateau, savings rates won’t increase from their current levels.
Monetary policy, where interest rates are raised and lowered to tackle inflation, is a tricky game to play. There are arguments that the system doesn’t work, but it could also be a cause for slow economic growth. In the midst of a cost of living crisis, household spending was down even before crippling mortgage rate increases came about.
Too much force from the Bank of England can seriously hinder businesses and limit the potential economic growth the country sees. Unemployment has increased at the same time as slow economic growth. With the level of inflation at 6.7%, the Bank of England has decided that keeping interest rates where they are is the best course of action.
The target level of inflation is 2%, so with rates more than three times what they should be, it’s not expected that this level will be seen until 2025. In the wake of spiking energy prices in the 1970s, the ensuing inflation proved difficult to tame. With energy prices partly to blame for stubbornly high modern day inflation, it could prove more difficult than it seems to get to a more manageable level.
The Bank of England expresses that should price rises start to pick up again, further interest rate rises may need to be introduced.