Bank of England to announce interest rates decision

1. What do economists expect today?

   Charlotte McDonald

   Business reporter

   The Bank of England is likely to resist signalling interest rate cuts despite the lower rate of inflation at 3.4% announced yesterday.

   Governor Andrew Bailey and his colleagues are expected to leave the key rate at a 16-year high of 5.25%, as he has reportedly been more cautious in talking about a pivot to lower borrowing costs.

   However, due to a decrease in wage pressures from the job market and a recession at the end of 2023, investors believe the Bank of England will lower rates before the end of summer.

   The inflation fall to 3.4%, announced yesterday, could strengthen these beliefs.

2. How do interest rates help tackle inflation?

   The Bank of England has a target to keep inflation at 2%, but the current rate is above that.

   The traditional response to high inflation is to put up interest rates.

   This makes borrowing more expensive and can mean some people with mortgages see their monthly payments go up. Some saving rates also increase.

   When people have less money to spend, they buy fewer things, reducing the demand for goods and - in theory - slowing price rises. Businesses also borrow less, making them less likely to create jobs, and may cut staff.

   

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3. Analysis

   Don't expect a rate cut yet

   

   Dharshini David

   Chief economics correspondent

   

   EPA-EFE/REX/ShutterstockCopyright: EPA-EFE/REX/Shutterstock

   With the cap on domestic energy bills falling, inflation is widely expected to drop below the Bank of England’s 2% target later in the spring. That would bring some relief after the biggest cost-of-living shock in four decades.

   But analysts don’t expect interest rates cuts just yet. For the Bank’s focus is not just on bringing inflation back to target but keeping it there in the longer term. And interest rate cuts take time to have an effect on the economy.

   Two members of its rate setting panel actually wanted to see another rate rise at the last meeting, due to concerns over the strength of services inflation - that’s for items such as insurance premiums, hotel stays and rent - and wage growth. But as some of those ease, they may feel reassured.

   So today may mark a turning point in the panel’s thinking - even if the first cut doesn’t come for a few months. And homeowners set to rearrange fixed rate mortgages at that point - and for some time beyond - may still see far higher repayments than they’ve been used to.

4. What are interest rates?

   Interest rates move up and down in order to control UK inflation, which has come down sharply in recent months, easing cost-of-living pressures.

   However, the UK economy has been stagnating amid increased borrowing costs and other pressures.

   Set by the Bank of England, interest rates affect mortgage, credit card and savings rates for millions of people across the UK.

   Last month, the Bank held interest rates at 5.25% for the fourth time in a row.

5. Latest interest rates decision to be announced

   

   Emily McGarvey

   Live editor

   Hello and welcome to our live coverage as we gear up for the Bank of England’s latest decision on interest rates at 12:00 GMT.

   That rate stands at 5.25% - the highest it has been for nearly 16 years.

   Economists expect the Bank will leave the key rate at this level, but we’ll know for sure at midday.

   Stick with us as we bring you the latest updates, while our team of experts explain what the Bank’s decision will mean for mortgages, credit cards, savings and everything else it affects.