image source, Getty Images
- Author, Mitchell Labiak and Kevin Peachey
- Role, Business reporter and cost of living correspondent
The central bank is expected to keep interest rates on hold for the seventh consecutive time at 5.25% on Thursday.
He believes the bank will wait to see if inflation remains at 2% in the coming months, with the 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 policy for the future of Britain’s economy a key battleground for the political parties.
After data revealed inflation fell to 2% in the year to May, the Tories said it proved their “difficult decisions” were paying off.
But Labor responded that pressures on family finances were “still acute”.
The Bank of England is independent of the government and its main role is to keep inflation, which measures the rate of increase in consumer prices, stable at 2%.
In response to high inflation, the bank has raised and then kept interest rates high in recent years in an attempt to slow it and reduce the cost of living.
Laura Suter, director of personal finance at AJ Bell, said it would be “highly unlikely” the bank would cut rates during the election campaign.
“It is highly likely that the bank will want to wait for the outcome of the election and the final economic plans before making the first cuts,” she added.
“With no meeting in July, that means all eyes are now firmly on the August meeting where we could cut rates for the first time.”
Analysts also said a rate cut was unlikely as services inflation, which reflects the prices of movie tickets, restaurant meals and holidays, remained higher than expected.
Higher interest rates meant the cost of borrowing money for things like mortgages, credit cards and loans increased, but returns on savings rose.
The theory behind rising rates is that they will slow inflation, but they can also drag on economic growth as businesses may delay investment or hiring, which could mean less job creation.
Last month, Bank of England Governor Andrew Bailey said policymakers needed to “see more evidence” that price growth had slowed further before cutting interest rates, but that he was “optimistic”.
Paul Broadhead, head of mortgage and housing policy at the Building Societies Association (BSA), said leaving rates unchanged would come as a “disappointment” for mortgage holders and potential borrowers.
“The reduction would provide some much-needed optimism for homeowners and first-time buyers,” he added.
According to BSA figures released on Thursday, more than half of people surveyed think a down payment on a home is too high. For first-time buyers, that number is two-thirds.
The average first-time buyer needs a household income of more than £60,000 to get on the property ladder, according to figures from Zoopla on Thursday.
Housing costs
Both Labor and the Conservatives accuse each other of failing to keep promises on housing, which would in turn raise costs for home buyers or renters.
The Conservatives said they were offering a better deal for stamp duty by permanently scrapping the charge for first-time buyers of properties up to £425,000.
But analysts say stamp duty is mainly paid by those buying larger houses or in more expensive areas. Any savings would not benefit everyone, as some would not have to pay anyway.
Meanwhile, Labor said its more ambitious rental energy efficiency plans would protect tenants from higher energy bills.
Questions remain over whether their proposals would be achievable, following concerns from charities about the quality of insulation fittings under government schemes.
Interest first started to pick up from near zero in 2021 when prices began to rise rapidly after the end of the Covid lockdown as demand for goods and services surged.
Energy prices then skyrocketed after the Russian invasion of Ukraine, which drove inflation to a 40-year high of 11.1% in October 2022.