The Bank of England is anticipated to maintain current interest rates this week, despite concerns about rising living expenses linked to the Iran conflict. Economists predict that the Bank’s Monetary Policy Committee will vote to keep the base rate at 3.75% on Thursday. While some committee members may advocate for an increase to 4%, others may push for rate cuts.
Initially, expectations were for the MPC to focus on rate cuts this year before the Iran conflict escalated in late February. However, with a surge in energy prices and early signs of increased inflation, rising from 3% to 3.3% last month, these plans have been put on hold. A decision to freeze the base rate will be welcomed by mortgage holders who could be directly or indirectly affected.
Chief economist Thomas Pugh from RSM UK noted, “The economy’s resilience and accelerating inflation make it more likely that the Bank of England will raise interest rates later in the year.”
The Bank of England’s previous rate decision occurred just 19 days after the outbreak of the US-Israel conflict with Iran. Economist Sandra Horsfield from Investec mentioned that while the US has implemented an indefinite ceasefire, the repercussions of the conflict persist, adding uncertainty for the MPC to consider. It is expected that the MPC will maintain the Bank rate at 3.75% during the upcoming meeting.
Pantheon Macroeconomics projects that all nine MPC members will vote to retain the base rate at 3.75%, considering the decision as a certainty, although one or two members might support a rate cut. Despite this, financial markets indicate a 10% likelihood of a rate increase this month.
Caitlyn Eastell, a personal finance analyst at Moneyfactscompare.co.uk, highlighted that keeping rates steady at 3.75% could benefit savers by potentially increasing savings rates and offering better returns. She advised savers to review their accounts, noting that loyalty could come at a cost, and emphasized the importance of deciding between flexible access or fixed rates when seeking new deals.