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  • Writer's pictureDenver Capital

UK interest rates left unchanged at 15-year high of 5.25% by Bank of England.



Recent developments indicate that interest rates in the UK are set to remain at elevated levels for a considerable time, with the possibility of further increases. This outlook contradicts official forecasts of economic stagnation. The Bank of England issued this caution as it kept the interest rate at 5.25% for the second consecutive month, marking the highest rate seen in the past 15 years.


Furthermore, the central bank also anticipates a notable slowdown in the rate of inflation in the upcoming months. Governor Andrew Bailey emphasised that a decrease in inflation doesn't necessarily translate to an imminent reduction in interest rates. He explained, "It's too early to consider the possibility of lowering interest rates."


Leading up to September, the Bank had consistently raised interest rates 14 times in a row, primarily to address surging inflation that was exerting significant pressure on households. These measures have resulted in higher mortgage payments but have also led to an uptick in savings rates.


Despite the easing of inflationary pressures, the Bank maintains its belief that interest rates will need to remain relatively high for an extended period. Governor Bailey further emphasised, "We will closely monitor the situation to determine if additional interest rate hikes become necessary."


Inflation, which measures the pace of price increases, receded to 6.7% for the year ending in September. The Bank's projections anticipate a sharp decline to 4.8% in October, with the expectation of further reductions in the following year, primarily due to a moderation in energy and food price increases.


As a result of this decline in inflation, Prime Minister Rishi Sunak is likely to fulfill his commitment to reducing inflation to approximately 5% by the end of the current year. However, the Bank has revised its economic outlook downward, foreseeing zero growth not only for the present period but also throughout the entirety of the next year, which coincides with a potential general election, and extending into 2025.


In its most recent inflation report, the Bank observed, "The pace of economic growth in the UK is slowing down."


 

IMPORTANT: This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualised advice from a qualified professional.



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