Interest rates - latest: Bank of England criticised for ‘overly cautious’ rates decision

The average UK house price fell by an estimated 0.6% in the year to January 2024, according to an index.

This took the average price of a home in the UK to £282,000, which was £2,000 lower than 12 months earlier.

It followed a decrease of 2.2% in the 12 months to December 2023, the Office for National Statistics (ONS) said.

In the 12 months to January 2024, average house prices decreased in England to £299,000 (down by 1.5%), decreased in Wales to £213,000 (falling by 0.8%), and increased in Scotland to £190,000 (up by 4.8%).

Average house prices increased by 1.4% to £178,000 in the year to the fourth quarter of 2023 in Northern Ireland.

Within the English regions, annual house price inflation was highest in the North West, where prices increased by 1.0% in the 12 months to January.

London was the English region with the lowest house price annual inflation, with prices falling by 3.9% in the 12 months to January.

What is inflation?

Rajan Lakhani, personal finance expert at smart money app Plum, explains that inflation measures the pace at which the price of goods and services in the UK is rising.

“The ONS looks at price changes over the previous 12 months to calculate inflation. [But] the key thing to remember with inflation is when inflation is falling, like today’s announcement, that doesn’t mean prices have fallen. It just means on average prices are rising less quickly,” Lakhani said.

“For example, the ONS would measure the price of items in February 2023 and what it is in February 2024.”

For Rob Morgan, chief investment analyst at Charles Stanley, mortgages and other forms of borrowing are not directly impacted by inflation.

“But many products are affected by expectations for the Bank of England base rate, which is influenced by it,” said Morgan.

“Recently, lenders have been increasing rates a little, after hopes of an earlier string of interest rate cuts receded. Today’s figures do little to move those expectations as they are already baked into market rates. However, if inflation remains on a downward trajectory and interest cuts arrive later this year as predicted, then borrowing costs should come down a little. Any falls will be modest compared to the steep rise since early 2022, though.”

Lakhani added: “Lower interest rates would be good news for mortgage holders, whether they have a variable or tracker mortgage, or are having to remortgage this year.

“Higher mortgage rates, which are influenced by the base rate expectations, have been hitting mortgage holders hard. The quoted monthly interest rate on a 2-year fixed mortgage loan to value (LTV) 75% was 1.64% in January 2022.

“The quoted mortgage rate for the same type of product two years later is 4.73%. For a 25-year £200,000 mortgage, that means an extra payment of £325 per month (£1,138 vs £813), a major increase.”

“We do not think the data will move the needle for the BoE meeting ,” said Matthew Swannell, Dani Stoilova and Gerardo Martinez at BNP Paribas.

“One area of the focus will be the vote split, with the largest uncertainty around whether hawk Jonathan Haskel changes his vote from a 25bp (base point) vote hike to a hold.

“By his own admission, his February vote for a hike was ‘finely balanced’, so it is difficult to call how he will vote tomorrow.

“Our expectation is that despite the BoE’s core services inflation dropping in February – which it would seem Haskel attaches some weight to – he will need further evidence of its being on a downwards trajectory before adjusting his vote. We expect an unchanged vote split.”

That would mean that only one of the nine-person committee is likely to think that conditions are right for a cut.

Economists generally agree that cuts to the interest rate will come later this year – the Bank has signalled as much recently too – but they are less sure when the cuts will come.

The direction of travel for UK inflation is certainly encouraging and supports the case for a policy easing in the near future,” said Ellie Henderson, an analyst at Investec.

“Our base case is for a first interest rate reduction in June.

“Furthermore, it is not just about actual inflation, expectations play a strong part too.

“As inflation expectations fall, but the nominal policy rate remains constant, the real rate of interest rises, resulting in a tightening in monetary policy, without the Bank actually changing its stance.

“The MPC will have that in mind when deciding on the appropriate time to cut interest rates.

“But for the meeting tomorrow, today’s inflation numbers do not change our view, first set out in our preview, that the MPC is likely to convey the message that it has an eye on easing policy rates this year, but the hurdle to do so has not yet been overcome.”

An interest rate is a measure that tells you how high the cost of borrowing money is, or how high the rewards of saving are.

If you are borrowing money, typically from a bank, the interest rate on that money is the amount you will be charged for borrowing it.

It is a charge on top of the total amount of the loan and will be shown as a percentage of the overall.

Higher percentages mean paying more money to the lender for borrowing the money.

If you are saving money in a bank account, the interest rate on that money is the amount you will accrue on top of your savings. Banks will pay you a percentage of your total savings, typically at the end of the year.

In all likelihood, Britain is only seven months away from a general election that the Labour Party will almost certainly win. It is now too late for any Conservative leader to salvage the situation, simply because of that time constraint.

Inflation is dropping towards the official 2 per cent annual target; the economy may well be out of its shallow recession by now; more tax cuts are on the way. But the voters are no longer listening. They made their minds up long ago.

The reasons for the Tory defeat will mostly not be found in what happens over the next few months, but what has happened in the last few years – and, indeed, since the first Conservative-dominated administration was formed in 2010. Change feels inevitable.

Ahead of today’s Bank of England interest rates decision, Henk Potts, Market Strategist at Barclays Private Bank said:

“The Bank of England is expected to keep rates at 5.25% for a fifth consecutive meeting on Thursday and maintain the current cautious guidance. However, recent data and economic projections have supported the case for interest rate cuts. Inflation has moderated and labour markets are finally starting to ease. Headline CPI is expected to fall below the central bank’s 2% target level later in the year, with unemployment climbing to 4.5% in the final quarter.

“The Monetary Policy Committee (MPC) is likely to be laser-focused on the incoming inflation prints, labour market reports and growth figures for the first quarter. These could pave the way for a pivot to an easing stance by the May meeting, with the first 25bp rate cut pencilled in for June. With more to follow, we anticipate that the Bank Rate will finish the year at 4%.”

Women who lost out in the state pension age rise must be compensated now, a landmark report has said as it criticised the government for failing to inform them about changes.

The Parliamentary and Health Service Ombudsman has recommended that the government pay those affected compensation as it concludes that the department for work and pensions (DWP) has “not acknowledged its failings nor put things right for those women affected.”

It comes after long-awaited report into how women lost out on money due to increases in their pension age was published.

Zoe Grunewald reports.

Activity across the UK’s private sector has grown steadily this month, showing further signs that the economy has climbed out of last year’s “brief recession”, according to new estimates.

The S&P Global/CIPS flash UK purchasing managers’ index (PMI), closely watched by economists, reported a reading of 52.9 in March, down slightly from 53.0 in February.

The flash figures are based on preliminary data. Any score below 50 indicates that activity is contracting, and any score above means it is growing.

Economists had expected a slightly stronger PMI reading of 53.2 for the month, according to a consensus provided by Pantheon Macroeconomics UK.

The country’s services industry - which spans businesses from pubs, restaurants and hairdressers to transport, real estate and insurance - continued to drive an uplift across the broader private sector.

However, growth started to lose momentum in March, which the firms surveyed often said was due to pressure on households’ disposable incomes.

Nevertheless, manufacturing production increased for the first time in more than a year, the survey showed.

It hints that recovery could be on the horizon for factories which have grappled with a prolonged downturn amid tougher economic conditions, and disruption in the Red Sea hitting supply chains.

Chris Williamson, S&P Global Market Intelligence’s chief business economist, said: “Further signs of the UK economy having pulled out of last year’s brief recession are provided by the provisional PMI data for March.”