Image source, Getty Images
- Author, Mitchell Labiak and Kevin Peachey
- Role, Business reporter and correspondent cost of living
The Bank of England is expected to keep interest rates at 5.25% for the seventh time in a row on Thursday.
They think the Bank will wait and see whether inflation remains at 2% in the coming months, with a first rate cut in the autumn now looking more likely than in the summer.
The Bank’s decision comes in the run-up to the general election, with policies for the future of the UK economy a key battleground for political parties.
After data showed inflation fell to 2% in the year to May, the Conservatives said it proved their “tough decisions” were paying off.
However, Labor responded by saying pressure on family finances was “still acute”.
The Bank of England is independent of the government and its main role is to keep inflation, which measures the rate at which consumer prices rise, stable at 2%.
In response to high inflation, the Bank has raised interest rates in recent years and then kept them at high levels in an attempt to slow it and lower the cost of living.
Laura Suter, personal finance director at AJ Bell, said it would be “highly unlikely” the Bank would cut rates during an election campaign.
“It is very likely that the Bank will want to wait for the outcome of the elections and final economic plans before making the first cut,” she added.
“With no meeting in July, it means all eyes are now firmly on the August meeting for our first possible rate cut.”
Analysts also said rates are unlikely to be cut as services inflation, which reflects prices for movie tickets, restaurant meals and vacations, remains higher than expected.
Higher interest rates have meant that the cost of borrowing money has risen for things like mortgages, credit cards and loans, but returns on savings have risen.
The theory behind rising interest rates is that this will slow inflation, but it could also slow economic growth as companies delay investment or hiring, which could mean fewer jobs are created.
Last month, Bank of England Governor Andrew Bailey said policymakers “need to see more evidence” that price rises have slowed further before cutting rates, but that he was “optimistic”.
Paul Broadhead, head of mortgage and housing policy at the Building Society Association (BSA), said leaving rates unchanged would be a “disappointment” for mortgage holders and potential borrowers.
“A cut would have provided much-needed optimism for homeowners and first-time buyers,” he added.
According to data released Thursday from the BSA, more than half of respondents think the down payment required to purchase a home is too high. For starters this is two-thirds.
According to data from Zoopla, the average first-time buyer needs a household income of more than £60,000 to get onto the property ladder.
Housing costs
Both the Labor Party and the Conservatives have accused each other of failing to deliver on housing promises, which would in turn increase costs for home buyers or renters.
The Conservatives said they were offering a better deal on stamp duty, permanently abolishing the levy on first-time buyers buying property up to £425,000.
However, analysts say stamp duty is mainly paid by those buying larger homes, or in more expensive areas. Potential savings would not benefit everyone, as some would not have to pay anyway.
Meanwhile, Labor said its more ambitious plans for energy efficiency in rental properties would protect tenants from higher energy bills.
Questions remain over whether their proposals would be feasible, following concerns raised by charities about the quality of insulation fittings under government schemes.
Interest rates first started rising from near zero in 2021, as prices began rising rapidly after Covid lockdowns ended, while demand for goods and services soared.
Energy prices then skyrocketed after Russia’s invasion of Ukraine, pushing inflation to a 40-year high of 11.1% in October 2022.