Current outlook for UK interest rates

The Bank of England (BoE) announced recently that the Bank Rate would stay at 5.25 per cent, where it has been since August 2023 and its highest level since April 2008.

The Bank Rate, which is sometimes referred to as the ‘base rate’, sets the interest rates that commercial banks receive on money they deposit with the BoE, or pay to borrow from the BoE. It filters through the banking system to influence all interest rates.

The BoE uses Bank Rate as its primary tool to control inflation. For example, if Bank Rate rises, then usually the interest rates that savers receive on their deposits rise, and the cost of borrowing also rises. This encourages saving and discourages spending, which tends to reduce inflation.

The BoE’s Monetary Policy Committee (MPC) sets Bank Rate about every six weeks. At its meeting this month, the majority vote was to keep the rate at 5.25%.

Consumer Price Index (CPI) inflation has fallen from a high of 11.1% in October 2022 to 3.2% in March 2024. While this is positive, inflation is still above the BoE’s target rate of 2%. The Bank expects inflation to fall to 2% soon, then increase slightly later in 2024 to about 2½%, before dropping below 2% in the next two years.

A fall in interest rates helps stimulate the economy, and is good news for people with mortgages, but it also means lower returns for those with fixed interest deposits. Hartey Wealth Management offers financial advice in Cheshire and Oswestry to help you find the best returns for your investments in these uncertain times, so contact us today.

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