The UK’s economic outlook remains challenging’ with the Bank of England issuing a warning that growth is expected to remain stagnant until 2025. This somber prediction coincided with the Bank’s decision to maintain interest rates at 5.25%’ the highest level in 15 years’ for the second consecutive time.
Bank of England keeps bank interest rates unchanged in boost for homeowners
The Bank of England (BoE) has left bank interest rates unchanged at 5.25 per cent amid concerns about the UK’s weak economic prospects.
Economists on Threadneedle Street were expecting the BoE to keep the bank interest rates the same due to concerns the country could be headed for a recession.
The BoE expects GDP to grow by 0.5% this year, unchanged from its last forecast, but downgraded its outlook for 2024 from 0.5% to 0%.
Last time the Bank’s Monetary Policy Committee (MPC) met, in September, it said that it downgraded its outlook for the third quarter of 2023, predicting that gross domestic product (GDP) would only rise by 0.1%, compared with the 0.4% increase it had forecast just a month earlier.
Holding the rate at 5.25 per cent will be positive news for homeowners as when the rates go up the cost of borrowing increases.
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Chancellor Rishi Sunak had previously committed to reviving the UK’s economic growth by the end of the year. However’ the revised forecasts cast doubt on the feasibility of this goal. On the bright side’ the Bank anticipates a significant drop in inflation’ which measures the rate at which prices increase. This suggests that Prime Minister Boris Johnson is on track to fulfill his pledge to reduce inflation to around 5% by year-end.
Notwithstanding these less-than-optimistic economic forecasts’ Bank of England Governor Andrew Bailey emphasized that it is premature to consider reducing interest rates. The Bank is committed to maintaining bank interest rates at a level sufficient to bring inflation back in line with its 2% target. Bailey stated’ “We will keep interest rates high enough for long enough to make sure we get inflation all the way back to the 2% target.” He also expressed the Bank’s readiness to monitor the situation and consider further rate increases if necessary.
The recent inflation figure for September was at 6.7%’ but the Bank foresees a gradual decline as the pressure from rising energy and food prices eases. Nonetheless’ inflation is expected to hover around 3% throughout the next year’ which remains above the Bank’s target.
While the Bank of England is not projecting a recession’ its forecast anticipates minimal economic growth in the coming years. This includes zero growth from the present time through the entirety of the next year’ which is also expected to feature a general election’ extending into 2025. The Bank summarized the situation as “UK economic growth is slowing.”
To address these economic challenges’ Chancellor Jeremy Hunt has pledged to unveil measures to stimulate economic growth in the upcoming Autumn Statement. The government’s strategy aims to encourage private investment’ increase employment’ and enhance the overall productivity of the British state.
The Bank of England had previously raised bank interest rates 14 times consecutively until September’ in a bid to curb soaring inflation that was placing pressure on households. This policy shift has resulted in higher mortgage payments but has also led to increased savings rates for many. However’ for individuals like Ebony Cropper and her fiancé’ who are diligently saving for a home deposit’ the rising costs of living’ including a £45 monthly increase in rent’ have posed significant challenges. For many’ the dream of homeownership feels increasingly distant’ making financial planning all the more essential.
Conclusion
The Bank of England’s cautionary outlook on the UK economy paints a challenging picture of stagnant growth until 2025. Despite the ambitious goals set by the government’ the economic landscape remains uncertain’ with interest rates at their highest in 15 years and inflation gradually easing.
Bank of England Governor Andrew Bailey’s commitment to maintaining higher interest rates in the pursuit of the 2% inflation target underscores the cautious approach to economic stability. While the recent inflation figure was high’ it is expected to gradually decrease’ allowing the Prime Minister to work towards his pledge of halving inflation by the year’s end.
The Bank’s prediction of minimal economic growth over the coming years’ coupled with expectations of a general election in 2022’ underscores the challenges ahead. Chancellor Jeremy Hunt’s forthcoming Autumn Statement’ outlining measures to reinvigorate the economy’ will be crucial in steering the UK’s economic trajectory.
The impact of the Bank’s policies on everyday citizens’ such as rising mortgage payments and increased savings rates’ is felt keenly. The struggles faced by those like Ebony Cropper and her fiancé’ trying to save for a home amidst rising living costs’ highlight the tangible effects of economic decisions on individuals.
In the face of economic uncertainty’ financial prudence remains paramount. The government’s actions in the coming months will play a pivotal role in determining the nation’s economic path. As households navigate these challenges’ responsible financial planning becomes an essential tool for securing financial well-being.
The Bank of England (BoE) has left interest rates unchanged at 5.25 per cent amid concerns about the UK’s weak economic prospects.
Economists on Threadneedle Street were expecting the BoE to keep the rates the same due to concerns the country could be headed for a recession.
The BoE expects GDP to grow by 0.5% this year, unchanged from its last forecast, but downgraded its outlook for 2024 from 0.5% to 0%.
Last time the Bank’s Monetary Policy Committee (MPC) met, in September, it said that it downgraded its outlook for the third quarter of 2023, predicting that gross domestic product (GDP) would only rise by 0.1%, compared with the 0.4% increase it had forecast just a month earlier.
Holding the rate at 5.25 per cent will be positive news for homeowners as when the rates go up the cost of borrowing increases.
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