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Economists on the Bank of England’s Monetary Policy Committee (MPC) have once again voted to hold interest rates at 5.25% when they met yesterday (2nd November).
The MPC voted 6-3 in favour of the hold, with those opposing calling for 0.25 percentage point rise in the bank’s base rate, although rates remain at their highest level in 15 years. The decision is the bank’s second consecutive rate hold after having uplifted interest rates consistently from the end of 2021 through to September this year, ending more than a decade of close-to-zero rates.
The move to hold rates follows the Bank of England’s latest forecasts on the economy which predict inflation to fall further in coming months. Current estimates expect the CPI to fall to 4.75% by the end of the year, expected to come largely from slowdowns in price rises for energy, food and core goods, and would see Prime Minister Rishi Sunak achieve his target set at the start of the year to see inflation fall below 5%.
The Bank also set out its prediction that UK GDP will remain flat across 2023, and show minimal levels of growth, below previous estimates, through to the end of 2025, raising the risk to the overall economy of uplifting interest rates further, giving the squeeze on household finances from higher mortgage repayments.
The Bank of England’s current forecasts for the economy are based on interest rates remaining close to their current level until the third quarter of next year, before declining gradually to around 4.25% by the end of 2026 – raising and lowering the bank’s base rate of interest is the main tool the MPC has to maintain its target inflation rate of 2%. Analysis expects inflation to drop to around 2.2% by the end of 2025, and to 1.9% by the end of 2026; however, it acknowledges that escalation of current events in the Middle East could impact energy prices and risk future rises in inflation during that time.