The Bank of England is poised to announce a significant decision regarding interest rates today, as the Monetary Policy Committee (MPC) convenes at midday. Economists largely anticipate a reduction of the Bank Rate by 0.25%, responding to a decrease in inflation, which has recently dropped to an eight-month low.
Currently, the base rate stands at 4%, down from a peak of 5.25% in late 2023. This adjustment reflects the easing inflationary pressures in the UK. The Consumer Price Index (CPI) inflation rate fell to 3.2% in November, down from 3.6% in October, according to the Office for National Statistics (ONS). While this figure remains above the Bank’s target of 2%, it marks a notable improvement from the alarming highs of 11% experienced during the energy crisis of 2022.
Inflation Trends Influence Rate Decisions
The fall in inflation has been significantly influenced by reduced costs in food and drink, which declined to 4.2% from 4.9%. Prices for alcohol and tobacco have also moderated. Danni Hewson, head of financial analysis at AJ Bell, remarked, “Although 3.2% is still way above the Bank of England’s target, it is expected to be the final piece in the puzzle which will enable rate setters to deliver their own festive gift to borrowers with an interest rate cut on Thursday.”
James Smith, a developed market economist for ING, echoed this sentiment, stating that the sharp drop in November inflation provides a “green light” for a rate cut in December. He noted, “Christmas has come early for the doves at the Bank of England, with inflation coming in well below expectations in November.” Despite expecting a potential rise in inflation in December due to seasonal factors, Smith believes that the overall trend suggests a cooling of price pressures. He expressed confidence that headline inflation could approach 2% by May and anticipates further rate cuts in February and April of next year.
Impact on Borrowers and Savers
The anticipated reduction in the base rate is expected to have significant implications for borrowers and savers alike. A lower interest rate typically leads to decreased mortgage and loan costs, while also influencing the interest rates offered on savings accounts. As the MPC evaluates the economic landscape, the decision made today could provide vital relief for many households facing rising living costs.
As the day progresses, financial analysts and market participants will closely monitor the Bank of England’s announcement, which is set to shape the economic outlook for the coming weeks and months.
