The Bank of England is widely expected to keep interest rates steady at 4% today, as policymakers remain cautious about easing borrowing costs amid persistently high inflation.
This follows official data released yesterday showing Consumer Prices Index (CPI) inflation held firm at 3.8% in August — the highest level since early 2024.
Most economists agree that the central bank will maintain its current stance until inflation shows more consistent signs of decline.
Nicholas Hyett, Investment Manager, Wealth Club, said: “Overall inflation is stuck at nearly twice the Bank of England’s target rate. For poorer consumers the effective rate is probably higher still, since food accounts for a larger proportion of their total spending and food prices have risen 5.1% year-on-year.
“Stubbornly high inflation means it’s unlikely that the Bank of England can bail out the economy with cuts. That is doubly bad news for the government, which desperately needs either growth to pick up or rates to come down in order to free up some financial headroom. .”
Interest rates were reduced to 4% in August, down from 4.25%, offering some relief to borrowers and mortgage holders.
However, economists suggest the Monetary Policy Committee (MPC) may hold off on further cuts at its November and December meetings, potentially keeping rates steady until early next year.
Alice Haine, Ppersonal finance analyst at Bestinvest by Evelyn Partners, commented: “Inflation held steady in the 12 months to August, remaining at 3.8%, offering little relief for cash-strapped households still grappling with overstretched budgets. Persistent inflation is also unwelcome news for Chancellor Rachel Reeves as she prepares for her Autumn Budget.
“Persistently high inflation mixed in with sluggish economic output and a cooling jobs market only adds to the pressure as she considers which taxes she may target to plug the black hole in the public finances.”
“With inflation remaining almost double the Bank of England’s 2% target, this may prompt a more cautious stance towards further interest rate cuts,” Haine added. “The BoE expects headline inflation to peak at 4% in September, dampening hopes of another interest rate cut on Thursday and reinforcing expectations that rates may stay higher for longer.”
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