The Bank of England is expected to keep interest rates steady at 5.25%, the sixth consecutive fix on Thursday.
This decision comes against the backdrop of continued high inflation, which currently stands at 3.2%, which exceeds the bank’s target of 2%.
In addition to the interest rate announcement, the bank will reveal its latest economic forecasts, highlighting future inflation trends and the path of the British economy. The release of this report is particularly important amid ongoing discussions about economic growth, as both major political parties outline their strategies to drive recovery and secure votes ahead of the next general election.
Prime Minister Rishi Sunak has expressed optimism about the economy's recovery in 2024, describing it as a pivotal year for recovery. However, households continue to face financial pressures despite assurances of a turnaround.
While economists widely expect the bank to maintain current interest rates, many expect a possible rate cut in the summer. The bank initially raised interest rates to limit inflationary pressures resulting from increased consumer demand following the easing of coronavirus-related restrictions. However, rising energy and food prices, exacerbated by geopolitical tensions such as the Russian invasion of Ukraine, contributed to inflation peaking at 11.1% in October 2022, its highest level in four decades.
A bank's prime interest rate influences the rates set by commercial banks and lenders, which affects borrowing costs for mortgages and other loans. As a result, borrowers face higher repayment obligations, while savers benefit from increased returns on their savings.
Laith Khalaf, head of investment analysis at AJ Bell, warned against premature cuts in interest rates, citing the US Federal Reserve's cautious stance on interest rates. While speculation continues regarding the timing of interest rate cuts, investors are leaning towards a possible cut in August.
Governor Andrew Bailey expressed cautious optimism about interest rate cuts, suggesting that achieving the 2% inflation target may not be a prerequisite for monetary easing, but one that policymakers must be convinced to achieve. Despite the economic challenges, policymakers believe the recent recession may already be over, with official data on economic performance in the first quarter expected to provide greater clarity on the UK's economic trajectory.