Bank of England Expected to Keep Interest Rates Steady

The Bank of England is widely anticipated to maintain interest rates at their current level of 4.75% at a meeting later today, reports the BBC. This decision comes despite inflation rising for the second consecutive month to 2.6% in the year to November, exceeding the Bank's target of 2%.

Analysts predict that the Monetary Policy Committee (MPC), the group responsible for setting interest rates, will opt for a period of stability following two rate cuts in 2024. In November, Governor Andrew Bailey indicated that future rate adjustments would likely be downward but emphasized a gradual approach.

The Bank uses interest rate adjustments to control inflation by influencing borrowing costs and consumer spending. Higher rates aim to curb demand and slow price increases. However, this strategy involves a delicate balancing act, as increased borrowing costs can negatively impact economic growth by discouraging business investment and job creation.

Despite the recent moderation in rates, the persistent inflation, coupled with Tuesday's data showing accelerated wage growth, suggests that the central bank may need to maintain current levels for an extended period.

"There is almost no chance of the Bank of England delivering an early Christmas present with another interest rate cut," stated Paul Dales, chief UK economist at Capital Economics, to the BBC. He cited stronger-than-expected domestic inflation pressures as a key factor.

Capital Economics forecasts a dip in inflation in December followed by a subsequent rise in January. However, the firm anticipates that inflation will return to near the Bank's 2% target by the end of next year.

The Bank's base rate significantly influences the rates charged by High Street banks and other lenders for loans and credit cards. While lenders generally incorporate potential rate holds or cuts into their own pricing decisions, mortgage rates remain considerably higher than those seen in previous years.