Why have interest rates stayed flat, what does it mean and will they come down?
On Thursday, the Bank of England held interest rates at 5.25%.
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Your support makes all the difference.The Bank of England has once again met to discuss what it needs to do to keep inflation under control.
It has been hiking interest rates since December 2021 as inflation ran rampant, with surges in the price of energy and food.
But on Thursday, policymakers at the bank paused their recent habit of increasing rates.
Here the PA news agency looks at what the decision means, whether it means rates will soon fall, and what the Bank expects to happen to the economy. We try to answer some key questions here.
What happened to interest rates today?
The Bank of England’s Monetary Policy Committee decided that it would hold the base interest rate at 5.25% in September’s meeting.
It is the first time the Bank has left interest rates unchanged since November 2021.
The move comes after 14 straight rises – taking the rate sharply higher from 0.1% – and means the base rate will remain at its highest level since 2008.
What will the decision to hold interest rates mean?
Rises in interest rates over recent months have been bad for borrowers. If you have a variable rate mortgage, an increase in the base rate means that the interest that you pay every month will increase.
Therefore, the decision to now keep rates at 5.25% means there is a slight reprieve for borrowers, particularly given that many economists and banks expected the rate to increase this month.
If you have a fixed-rate mortgage, or are planning to take out a new mortgage, it means the interest you are likely to pay will be similar, or possibly less, than what was being offered a month ago.
However, the fact rates have jumped over the past two years mean you will very likely pay more in interest when you remortgage than your previous deal.
But you are not immune to the effects of interest rate changes if you do not own your house. Higher interest rates also often find their way to renters as well, and therefore the pause could also provide some with breathing room.
The move to keep rates the same will however be less well received by savers who have witnessed improved deals in recent months.
The base rate going up increases the amount that your bank will pay you in interest on the money you have in your bank account.
Will rates continue to stay the same, or could they go up or down?
Forecasting the future is impossible, but markets still bet on it to make money if their bets are right.
The Bank previously that markets expect its base interest rate to keep rising to 5.8% in the last quarter of this year and are expected to average just above 5% over the next three years.
In the minutes of the latest meeting, the bank also failed to rule out another interest rate increase.
The Bank itself does not say what it will do to interest rates in future.
What’s the Government’s inflation target, and is it on track?
The Government said at the end of last year that it planned to halve inflation from 10.7% at the time to 5.3% by the end of this year.
The Bank’s economic projections, which could easily be wrong, are now that the Government will meet this objective. It expects Consumer Prices Index (CPI) inflation to fall to 4.9% in the final quarter of the year.
Most of this will be because of falling international energy prices, which have very little to do with anything the Government has done.
Last month, inflation fell to 6.7%, surprising economists who had expected higher fuel costs to drive an increase for the month.
What’s the economy doing?
The Bank said that it does not expect the economy to go into recession this year, although margins are slim and the margin for error around its forecasts could allow for a recession.
The central bank however downgraded its forecast for the UK’s economy on Thursday.
It now expects gross domestic product (GDP) to rise just 0.1% in the third quarter of this year, compared with the 0.4% rise it forecast in August.