Interest rates are anticipated to remain at their nearly 16-year peak for at least another month, as the Bank of England’s cautious Monetary Policy Committee (MPC) members wait for more evidence of the cost-of-living crisis abating.
The MPC is broadly expected to maintain the interest rate at 5.25% for the fourth consecutive time in their meeting today.
This decision would continue to alleviate some burden on borrowers who have faced increasing costs, rising from a low of 0.1% at the end of 2021 to the current highest rate since early 2008.
Recently, inflation has seen a significant decrease, with fuel prices dropping and a slowdown in the rise of food prices.
However, the consumer prices index (CPI) inflation rate climbed to 4% in December, up from 3.9% in November, marking the first increase since February of the previous year.
This unexpected rise in inflation has led economists to believe that the Bank is unlikely to reduce interest rates – a strategy used to manage inflation – in the near future.
Susannah Streeter, head of money and markets at Hargreaves Lansdown, commented, “The uptick in inflation in December probably dampened any immediate inclination among policymakers for rate reductions in the near future.”
However, Andrew Goodwin, chief UK economist at Oxford Economics, views December’s unexpected inflation rise as “not too concerning for the MPC,” attributing it to factors like increased tobacco duties and higher airfares, which are more fluctuating indicators.
