Displaying items by tag: Bank of England

UK inflation rose by more than expected to 2.3% for October, exceeding the official 2% target. This rise, up from 1.7% in September, reflects increased energy costs following a 10% hike in the energy price cap and higher prices for food and products like stamps. This news comes amid concerns about inflationary pressures, potentially influenced by global factors such as Donald Trump’s trade policies. The Bank of England’s monetary policy committee (MPC) will weigh these figures in December to decide whether to adjust interest rates further. In early November, the MPC cut the base rate to 4.75%. Additional government spending and tax adjustments from chancellor Rachel Reeves' recent budget may also drive up short-term inflation. One commentator thinks that the impact of Trump’s policies will likely have limited effects on UK GDP and inflation, even under extreme scenarios. Analysts predict the UK base rate could drop to 3.75% by late 2025.

Despite a recent Bank of England base rate cut from 5% to 4.75%, many major lenders have increased mortgage rates and withdrawn top deals, leading to higher costs for borrowers. Around 200 deals have disappeared from the market in the past month. After the Bank’s rate reduction, average two-year and five-year fixed mortgage rates have increased to 5.44% and 5.17% respectively. Experts suggest lenders are raising rates to manage demand and maintain service standards as market conditions fluctuate. Notably, smaller lender MPowered Mortgages has reduced rates, contrasting with the broader trend. Borrowers are advised to secure current deals promptly to mitigate further costs.

Brexit has had a significant impact on London’s financial sector, with an estimated 40,000 finance jobs lost since the UK’s departure from the EU, according to Michael Mainelli, the Lord Mayor of the City of London. This figure is at odds with previous estimates, including a 2022 assessment which put the job loss at around 7,000. While cities like Dublin, Milan, Paris, and Amsterdam gained positions from the migration of jobs, London’s financial centre has continued to grow, adding roles in insurance and data analysis, bringing the total workforce to 615,000. Mainelli's remarks come as Britain seeks to restore relationships with Europe amid a broader economic slowdown. Although many had hoped Brexit would reduce immigration and deregulate industries, it has proven difficult to disentangle regulations, and the economic slowdown has persisted. Keir Starmer is attempting to rebuild ties with the EU, focusing on improving business relations but ruling out rejoining the single market.

The Bank of England is expected to lower its base interest rate to 3.5% in the coming months, a relief for home buyers and businesses as the UK economy shows signs of improvement. Experts predict the economy will grow at double the previously expected rate. One leading firm has highlighted the need for increased public investment to sustain this growth trajectory. While interest rates have surged due to inflation concerns, prompting households to save rather than spend, the easing of rates is expected to boost consumer confidence. The Organisation for Economic Co-operation and Development (OECD) also upgraded the UK’s growth forecast, positioning the UK just behind the US in expected economic performance within the G-7 nations. Despite lingering uncertainties, these optimistic projections suggest a stronger economic outlook for the UK in the near future.

The Bank of England has cut interest rates by a quarter percentage point to 5%, marking the first reduction in over four years. This decision ends the joint-longest period of stable rates since the Bank gained independence in 1997. The nine-member Monetary Policy Committee (MPC) voted five to four in favour of the cut. Lower interest rates will impact many savings accounts and floating rate mortgages immediately, though fixed rate mortgages had already anticipated this change. The rate cut follows a drop in the consumer price index rate of inflation to 2%, the MPC’s target. However, the Bank's updated forecasts indicate that inflation will rise to around 2.75% by the year's end. Governor Andrew Bailey cautioned that while inflationary pressures have eased, rates should not be cut too quickly to maintain stable inflation and support economic growth. The forecasts will be reviewed after the new chancellor’s budget announcement in October.

Market expectations for an August interest rate cut diverge from economists' predictions. A Reuters poll of economists indicates that the Bank of England is expected to cut interest rates next week for the first time in over four years. Most economists surveyed—over 80%—anticipate the rate will drop to 5% from the current 5.25%, which is the highest it has been in over 15 years following 14 consecutive hikes. However, market sentiment is less certain. A slight majority (54%) believe rates will be held steady, while 46% anticipate a cut. Earlier predictions were more confident about a rate reduction, with 97% of economists in a June poll expecting a cut before the latest inflation data was released. The anticipated rate cut would make borrowing cheaper, as evidenced by Nationwide offering a five-year fixed-rate mortgage deal at less than 4%. The last interest rate cut occurred in March 2020 during the onset of COVID-19 in the UK. The Bank of England has maintained higher rates to combat inflation, aiming to bring it down to 2%. Despite recent drops in inflation, rates have remained at 5.25%.

Homeowners face rising mortgage rates as a Bank of England interest rate cut is delayed. Several banks have raised some mortgage rates, responding to uncertain economic forecasts. Inflation remained higher than expected at 3.2% in March, influencing market predictions and delaying anticipated rate cuts. Mortgage brokers have advised securing rates swiftly to avoid financial strain. One broker highlighted the volatile nature of current rates, while another noted increasing frustration among homebuyers due to these changes. Currently, the average two-year and five-year fixed mortgage rates stand at 5.82% and 5.40% respectively.

UK inflation has dropped to 3.4%, the lowest in over two and a half years, potentially signalling a Bank of England (BoE) interest rate cut this summer. This decrease, primarily driven by slower food price increases, may lead to cheaper mortgages, providing relief to homeowners. Initially predicted at 3.5%, the February inflation rate was pleasantly surprising, especially as food inflation fell to 5% from 7% in January. The decline supports Rishi Sunak's commitment to reduce inflation, and aligns with the BoE's target of 2%. This news prompted NatWest to lower mortgage rates even before the BoE's decision. Financial markets expect the BoE to maintain the current 5.25% interest rate, but the reduced inflation increases the likelihood of a summer cut, which could significantly lower mortgage payments. However, renters face contrasting challenges, with rental costs rising at record rates due to market constraints. The average UK rent soared by 9% over the past year. As homeowners anticipate potential financial relief, renters continue to struggle with escalating living expenses.

Bank of England governor Andrew Bailey, addressing MPs, has expressed optimism about the UK economy despite a recent shallow recession. He noted 'distinct signs of an upturn’, foreseeing one of the mildest recessions in modern history. The Bank's measures, including fourteen consecutive interest rate hikes, aimed to bring inflation back to 2% to help allow for sustainable growth. The bank’s reluctance to cut interest rates reflects worries over the outlook for inflation later in the year. Bailey cautioned against complacency, citing uncertainties such as energy costs and shipping disruptions. Asked about the timing of cuts in the interest rate, he refused to say when or by how much this might happen: his deputy said this would be based on ‘data not dates’.

Bank of England governor Andrew Bailey has identified 'global shocks' as a significant threat to the UK economy. During a treasury committee session, he expressed concerns about the situation in the Red Sea, especially regarding oil supplies. Recent attacks by Iran-backed Houthi rebels on cargo ships in the Suez Canal have prompted some vessels to reroute for safety reasons. Oil giant BP even temporarily halted all oil shipments through the Red Sea due to the threat. Bailey said that these disruptions could impact shipping prices and costs, which would have implications in the monetary policy realm. However, he noted that there has not yet been a prolonged spike in oil prices. Deputy governor Sarah Breeden also highlighted the threat of uncertainty, encompassing macroeconomic conditions, geopolitical tensions, credit risks, and unemployment. Regarding the UK housing market and interest rates, Bailey observed that market interest rates have recently decreased, resulting in lower mortgage costs.