Despite signs of economic recovery, the Bank of England has kept its base interest rate at 5.25%, as inflation rates decline and the UK emerges from recession. With major impacts foreseen on mortgages and savings, the economic outlook remains a key focus in the upcoming general election.
On May 9, 2024, the Bank of England chose to maintain its base interest rate at 5.25% for the sixth consecutive meeting, citing a need for more evidence before making any adjustments amidst a declining inflation rate, which dropped to 3.2% in March 2024 from 11.1% in October 2022. Governor Andrew Bailey highlighted the challenges and complexities in the current economic landscape but remarked that signs of progress are evident. The economic outlook indicates a mild recovery with expectations of growth over the next two years and potential interest rate reductions in the future to meet the Bank’s inflation targets.
This monetary policy stance comes as the UK is reported to be emerging from a recession, with forecasts suggesting the end of economic contractions. Notably, upcoming economic figures are anticipated to confirm this development. Prime Minister Rishi Sunak has voiced his optimism regarding the economic trajectory, though opposition parties remain critical of this positive outlook, deeming it out of touch with the financial realities of ordinary citizens, particularly ahead of the impending general election.
Furthermore, the decision to keep interest rates unchanged directly impacts approximately 1.6 million UK households as many mortgage deals are due to expire in 2024, with borrowers potentially looking at higher rates when refinancing. While this is burdensome for mortgage payers, the static interest rates provide a boon for savers who currently benefit from one-year fixed-rate savings deals available around 5%.
In the broader economic context, European stock markets reacted positively to the Bank of England’s hints at possible future rate cuts. The FTSE 100 in London reached a new all-time high, driven by optimism generated from the Bank’s signals of potential easing in monetary policy, buoyed further by leading sectors such as mining and housing stocks. This climate fostered a supportive environment for equities, reflecting increased investor confidence across various European indices and in the US market.
Given the interplay of cautious monetary policies, forthcoming electoral politics, and the financial pressures faced by households, the UK’s economic landscape continues to be a focal point of analyses and discussions on both domestic and international levels. Future decisions by the Bank of England, particularly regarding interest rates, remain a critical component to watch, with significant implications for both the consumer economy and broader financial markets.
