NEW YORK — Bond investors, anticipating the U.S. Federal Reserve will hold interest rates steady again this week, are moving away from longer-dated Treasuries as they temper expectations for an aggressive easing given the lower chance of a U.S. recession.

Their flight away from the long end of the curve also reflects worries about President Donald Trump’s tax and spending bill, which is being considered by the U.S. Senate.

On Wednesday, the U.S. central bank’s policy-setting Federal Open Market Committee is widely expected to keep its benchmark overnight interest rate in the 4.25 to 4.50 per cent range at the end of a two-day meeting, as it tries to grapple with a mercurial Trump administration trade policy that could still boost inflation in the second half of the year.

But soft consumer and producer price readings in May, which so far have yet to show the effects of higher tariffs on inflation, have fanned expectations that the Fed could resume cutting rates soon.

Futures tracking the Fed’s policy rate show higher odds that the central bank will deliver a pair of back-to-back rate cuts starting in September. Before the release of the latest inflation numbers, the market had priced in a cut in September followed by another one in December.

The Fed reduced rates three times in 2024 before pausing its easing cycle early this year.

“I don’t necessarily want to go long duration,” said Victoria Fernandez, chief market strategist and fixed income portfolio manager at Crossmark Global Investments in Houston.

While traders are betting the Fed’s next rate cut will happen at its July or September meetings, Fernandez said she could see it happening “toward the very end of the year or even into next year.”

Duration, expressed in number of years, shows how far the bond’s value will fall or rise when interest rates move. In general, when rates fall, higher-duration bonds experience a greater increase in value compared to those with lower duration.

Long-duration bets typically involve buying assets on the back end of the curve on expectations of a decline in yields.

“There’s a reason long rates (30-year Treasuries) are moving toward 5%, and that is because there’s significant pressure in selling duration,” said Neil Aggarwal, head of securitized products and portfolio manager at Reams Asset Management in Indianapolis.

“There are near-term concerns about volatility and from a short-term basis if you expect volatility to persist, it’s difficult being long duration.”

Thirty-year bond auctions were not well-received during the Treasury sales in April and May, amplifying the market’s reticence about holding longer-dated debt. The long bond did see strong demand at last week’s auction, helped in part by the rise in 30-year yields and easing volatility in the sector.

Positioning based on the latest J.P. Morgan Treasury Client Survey and active core bond fund indexes also suggested that long-duration positions have declined over the past two months.

Analysts said part of that move could be attributed to diminished expectations of a U.S. recession, which briefly increased in April following Trump’s imposition of tariffs on imported products from around the world. Trump has since walked back most of the tariffs even as the U.S. and China affirmed a trade deal.

Goldman Sachs, for instance, last week trimmed its view of the probability of a U.S. recession in the next 12 months to 30 from 35 per cent on easing uncertainty around Trump’s tariff policies.

Fiscal worries, steeper curves

Trump’s “One Big Beautiful Bill Act,” which passed the U.S. House of Representatives and is being debated in the Senate, is likely to increase the deficit by $2.4 trillion over the next decade, Congressional Budget Office estimates showed, coming at a time when the U.S. debt as a share of gross domestic product has surged. Tariff revenue, however, should offset some of the deficit impact of the tax and spending bill, analysts said.

The prospect of even bigger deficits has added to concerns about the back end of the curve.

“There is a legitimate argument to expect steeper government curves in this cycle,” said Danny Zaid, portfolio manager at TwentyFour Asset Management in New York.

Yield curve “steepeners” have been a popular trade since the Fed embarked on its easing cycle in late 2024. The strategy involves bullish bets on short-dated Treasuries, while reducing longer-dated exposure, which pushes yields on longer-dated Treasuries higher than short-term maturities.

“As investors, you should demand more compensation to fund a government that has a 120% debt-to-GDP ratio than a government that has 70% debt to GDP,” Zaid said.

Investors are compensated with a higher yield for taking risk over a longer period.

“We think the curve can steepen some more,” said Brendan Murphy, head of fixed income for North America at Insight Investment in Boston, referring to the five- to 30-year yield curve.

“We are overweight duration but concentrated more on the front end relative to the back end and more cautious about that 30-year part of the curve primarily due to uncertainty around the fiscal expansion and the potential for inflation to pick up due to some of this tariff policy.”

Investors on Wednesday will also focus on the release of updated quarterly economic projections from Fed policymakers, including rate forecasts, which are issued in a chart known as the “dot plot” that reflects how much easing is expected. The “dots” from the March meeting showed a policy rate of 3.75 to 4 per cent by the end of 2025, or two quarter-percentage-point cuts.

Bond investors do not expect any changes to the Fed’s policy rate forecast.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Alden Bentley and Paul Simao)

President Donald Trump’s argument for a base rate cut is gathering pace as the latest CPI report from the Bureau of Labor Statistics came back with a comfortable reading of 2.3%—only a fraction higher than the Fed’s target.

In 2025 so far the Federal Open Market Committee (FOMC) and its chairman Jerome Powell have held off further normalization of the base rate–currently set at 4.25% to 4.5%—as the group nervously eyes whether President Trump’s tariff regime will push up prices for consumers.

The CPI report released this week will be a double-edged sword for the FOMC.

On the one hand, it’s good news that inflation is hovering so close to the target of 2%—to some extent endorsing the policy stance the committee has taken in recent months.

On the other hand, the report gives Trump ammunition to call for a cut to interest rates.

Indeed when the CPI report was shared, the president wasted no time on doubling down on his stance that the FOMC should be loosening monetary policy in the U.S.

Taking to Truth Social, the social media platform he owns, Trump wrote: “No inflation, and prices of Gasoline, Energy, Groceries, and practically everything else, are DOWN!!! THE FED must lower the RATE, like Europe and China have done.”

For context, the president’s post isn’t entirely accurate. The CPI report didn’t confirm there was no inflation—that would have been a reading of zero—and in fact reported an inflation increase of 0.2% compared to a month prior, bringing the 12-month average to 2.3%.

The president is correct in saying that the prices of gas and groceries dropped in April, down 0.1% each, though energy and energy service prices increased 0.7% and 1.5% apiece.

Many other commodities such as clothing, used cars and trucks, and food away from home posted negative inflation readings, while the likes of shelter, medical care services and transportation services increased in price fractionally.

“What is wrong with Too Late Powell?” Trump added on Truth Social. “Not fair to America, which is ready to blossom? Just let it all happen, it will be a beautiful thing!”

Why wouldn’t the Fed cut?

The FOMC may still resist cutting at its next meeting in June for a range of reasons.

Firstly, there is still a great deal of volatility and uncertainty in the economic outlook. In the face of such conditions, Powell has said the Fed will sit tight and wait for more data before deciding on a path forward.

Following the May meeting, when the FOMC held rates, Powell said: “The labor work is solid, inflation is low. We can afford to be patient as things unfold. There’s no real cost to our waiting at this point.”

Secondly—and a factor contributing to the uncertainty in markets—is the White House’s tariff policy.

While some may argue that tariffs so far have not had a massively inflationary impact, economists widely expect a trickle-down effect of costs being passed back to consumers in the next few months.

After all, the full effect of President Trump’s tariff policy has not yet been felt (this inflation data is for April when tariffs were announced and then paused) and the ultimate extent of tariff action is still unknown. The Oval Office’s evolving rhetoric on tariffs might leave policymakers questioing how many more twists trade negotiations may present—few would have predicted an 145% hike on Chinese imports in a matter of weeks.

As Bank of America’s U.S. economists wrote yesterday: “The benign April CPI print doesn’t really move the needle for the Fed. The impact from tariffs was not expected to show up in the inflation data until May or June.

“With inflation already above target, the only reason to cut in the near term would be if the labor market were to deteriorate materially. We believe we are still some ways from the stage where the Fed can cut on soft inflation alone.”

And then there is the question of Fed independence, a question which time and again Powell has attempted to shut down by insisting that the FOMC’s decisions are based on data and evidence from businesses alone.

Trump has accused Powell of exactly the opposite, saying on the campaign trail that if Powell cut rates before the election (which subsequently happened) then it was a political move. Since the election Trump has then pressured the FOMC to axe the base rate—prompting the nickname of ‘Too Late Powell’—and threatening to fire the Fed chairman if Trump’s wishes weren’t actioned.

To some extent, Powell can’t win in defending the federally-mandated independence of the Fed. If he cuts, analysts may fear he’s done so because of political pressure and if he doesn’t, could be accused of refusing to do so to prove the Fed’s autonomy.

18 June: Economists Fear Price Rises If Oil Supplies Hit By War

Hopes for a cut in the Bank of England’s benchmark Bank Rate as early as tomorrow faded with the news that inflation in the year to May was 3.4%, down only slightly from the 3.5% reported by the Office for National Statistics for April, writes Kevin Pratt.

The Bank uses a relatively high Bank Rate to sap demand from the economy and thus lower the rate of price increases towards its target of 2%. It will announce its latest borrowing rate, which influences mortgage and savings rates, at noon on Thursday.

The Bank Rate currently stands at 4.25%, having come down from 4.5% in May. The Bank expects inflation to remain at or above current levels until the autumn, although its calculations have been thrown into question by conflict in the Middle East.

Around a fifth of global gas and oil supplies are shipped through the Strait of Hormuz off the coast of Iran at the mouth of the Persian/Arabian Gulf. If the Iran-Israel war continues and ships come under threat, oil prices will rise, feeding inflationary pressure into economies worldwide.

The price of oil has risen from around $63 a barrel at the end of May to over $76 today, and it could rise further if the United States enters the fray on the side of Israel.

Domestically, some prices have risen as employers adjust to paying higher National Insurance Contributions, introduced in April along with a higher rate of minimum wages. The ONS said a fall in transport costs was partially offset by an increase in the cost of food, furniture and household goods.

It also said its April inflation figures were overstated due to an error in vehicle excise duty data provided by the government, and should have stood at 3.4% rather than 3.5%. The error has been corrected but, in line with established practice, the rate itself has not been amended.

Commenting on today’s figures, Nicholas Hyatt at Wealth Club said: “The price of Brent crude [oil] has moved sharply higher despite key global oil routes remaining largely unaffected, and the conflict has the potential to disrupt global energy flows much more severely than it has so far.

“As a key input into pretty much everything, a spike in oil would drive up prices across the board. The inflationary risk from the Middle East, combined with already rising prices, could change the calculus for the Bank of England and make rate cuts that bit less likely.”

Matt Smith at property portal Rightmove said: “As the rate of inflation stays above 3%, the expectation is that the Bank of England is set to act cautiously. Anticipation had risen that we may be in line for multiple Base Rate cuts this year at the peak of tariff uncertainty, but as some of these pressures have eased, this expectation has fallen back.

“Forecasts for the rest of the year are likely to jump around a bit due to ongoing global uncertainty and changes in how the market expects things to pan out. However, the current view is that we’re only expecting one more Base Rate cut this year, and tomorrow’s decision by the Bank of England is likely to be a hold.

“As for average mortgage rates, these have stayed pretty flat for the last few weeks as the opportunity for lenders to lower rates has reduced. Despite this, we’re seeing an active housing market at the moment, with May having been the strongest full month for agreed property sales since March 2022.”

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

21 May: Bank Rate May Stay Higher For Longer

Prices rose by 3.5% in the year to ‘awful April’, spurred by a clutch of increases to energy and water bills, vehicle excise duty and council tax payments, writes Kevin Pratt.

In March, annual inflation fell from 2.8% to 2.6% on the back of lower prices at the fuel pumps. This latest increase takes the annual rate to its highest since February 2024.

The Bank of England, which has an inflation target of 2%, forecast that the rate would peak at 3.5% in the third quarter of 2025 when it cut the benchmark Bank Rate to 4.25% earlier this month. The spike in April likely reflects businesses increasing prices on the back of higher employment costs, which also took effect at the beginning of the month.

Yesterday analysts predicted that the cap which governs the majority of domestic energy bills will fall by 7% when it is next revised in July, not 9% as previously indicated. There are also concerns about the potential impact of higher trade tariffs on prices.

Further cuts to the Bank Rate may be delayed while the Bank monitors inflationary pressures across the economy. Commentators had expected further cuts to as low as 3.75% by the end of the year but the trajectory taken by inflation during the summer will determine whether and when these will materialise.

Nicholas Hyett at investment advisor Wealth Club said: “The UK’s disinflation story has gone down the drain this morning. Higher water and energy prices were always expected to push up inflation in April. In the event, prices have risen even faster than expected, with the price of household services rising a whopping 7% year-on-year, with water and sewerage costs alone up 26.1% month-on-month.

“The spike could cause a bit of a stink at the Bank of England, which cut interest rates just a couple of weeks ago. Two members of its Monetary Policy Committee wanted to leave rates unchanged, and they may well feel vindicated by today’s number.

“The net effect of all this is a greater squeeze on the consumer, together with the probability of fewer interest rate cuts in the near term.”

The Bank uses higher interest rates to increase the cost of borrowing and sap demand, exerting downward pressure on prices. If the Bank Rate stays higher for longer, it may lead to more expensive mortgages on the one hand, but greater stability in savings rates on the other.

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

8 May: Reduction Made Despite Likely Rise In Inflation To 3.5%

The Bank of England has trimmed its base lending rate from 4.5% to 4.25% in a bid to counteract a potential slowdown as the global economy adjusts to US President Trump’s imposition of swingeing trade tariffs, writes Kevin Pratt.

The news follows today’s announcement of a trade deal between the UK and the US that will limit some of the tariffs levied between the two countries. Other deals between the US and its trading partners are expected to follow.

A lower Bank Rate will be welcomed by mortgage borrowers as it is likely to influence lending rates across the economy. But savers may see their returns fall unless they have locked into a fixed rate.

The Bank uses interest rates to help control inflation, which was recorded at 2.6% in March. The figure for April will be released later this month but is expected to increase to around 3% because of a clutch of price increases including energy and water bills and Council Tax payments.

But the Bank says there is justification for today’s cut, despite the likelihood that inflation will rise further this year. Its May Monetary Policy Report said: “The progress we have made on inflation means we have been able to reduce interest rates gradually since last year. Nevertheless, inflation is likely to rise to 3.5% by September. Inflation is expected to fall back to the 2% target after that.

“If things evolve as expected, we expect to reduce interest rates further. But there are risks around the path of inflation. We need to be confident that inflation will remain low and stable in a lasting way. We will decide carefully by how much and when we can cut interest rates.”

Today’s decision by the Bank’s nine-strong Monetary Policy Committee was a close call at 5 votes to 4 in favour of the cut to 4.25%. Two members wanted a cut to 4.0% while two wanted to leave the rate at 4.5%.

Economic forecasters suggest the Bank would like to reduce the base rate to 3.75% by the end of the year if conditions allow.

Yesterday, the Federal Reserve, the Bank of England’s US equivalent, held its main lending rates within the range 4.25% – 4.50% for the third time in succession.

Both central banks have an inflation target of 2%, with higher interest rates deployed in a bid to slow economic activity and reduce the speed at which prices are rising.

Matt Smith at property portal Rightmove said: “With some mortgage lenders having taken their time to pass on the benefits of this expected Bank Rate cut, I think we may see further reductions in the coming days and weeks.

“The lowest available five-year and two-year fixed mortgage rates are edging downwards, with the cheapest available two-year fixed rate the lowest it’s been since before the mini-Budget in March. Since the last rate cut, we’ve also seen how lenders are trying to help home-buyers outside of reducing rates, by reviewing their affordability criteria.

“There’s still a lot of uncertainty over how tariffs may impact the global economy, so it’s difficult to make predictions. However, financial markets are forecasting two to three more Bank Rate cuts in 2025. In the short-term, I think movers can expect average mortgage rates to trickle downwards over the next few weeks, but not dramatically.”

The Bank of England will announce its next Bank Rate decision on 19 June.

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

16 April: Global Turmoil Takes Edge Off Optimistic Forecasts

Expectations of a Bank of England interest rate cut in May blossomed on the news that inflation fell to 2.6% in the year to March, writes Kevin Pratt.

The annual rate at which prices are rising continued to slow from 2.8% in February and 3% in January. Analysts believe this will encourage the Bank to trim the benchmark Bank Rate from 4.5% to 4.25% at its next policy meeting on 8 May.

Mortgage rates have tumbled in recent days, with lenders anticipating as many as four Bank Rate reductions in 2025, which could take it down to 3.5%. The Bank of England is thought likely to cut the rate to stimulate economic activity in the face of a global slowdown triggered by increased trade tariffs.

Nathan Emerson at estate agent trade body Propertymark said: “Worries about the UK and the global economy in response to wider international events has provided a generally downbeat outlook for many consumers. However, today’s news will hopefully provide welcome relief to people considering taking advantage of the traditionally busy spring and summer months to purchase their next home.”

While this is positive news for the housing market, it is also likely that returns on savings will be hit, with the best rates falling below current levels of around 4.5%.

Today’s inflation rate figure was attributed by the Office for National Statistics to falls in the wholesale cost of oil, which have been reflected in cheaper pump prices. Supermarkets are selling a litre of petrol for below £1.32, down from a recent high of £1.40 in February.

Despite the positive inflation reading, commentators sounded notes of caution, especially given the repeated lurches in stock market prices since President Trump’s so-called Liberation Day on 2 April, when he introduced a raft of swingeing tariff increases.

Policy adjustments in the days since and continued fears about the possibility of a full-on trade war between the US and China are introducing an element of uncertainty to forecasts.

Jonathan Moyes at Wealth Club said: “The UK economy is not out of the woods yet. There is a long and swinging road to reach the Bank’s 2% inflation target. Services inflation remains stubbornly high, largely due to higher housing costs, including higher rents and council tax. The rise in the energy price cap is also set to see inflation jump in April.

“Whisper it quietly though, were it not for a global trade war, the UK consumer would be in excellent shape. Wage growth is running at 5.6%, a further three interest rate cuts this year will drive mortgage rates lower, food inflation is slowing, as is eating out and travel. Plus with the oil price in the low $60-a-barrel range, energy prices look to have peaked.

“If the UK can escape the worst of the global trade war, it might not all be doom and gloom for the UK consumer this year, and we haven’t said that for a while.”

Danni Hewson at broker AJ Bell said: “This month’s figures almost seem redundant considering all those price rises that set in at the start of April, which are expected to push inflation higher than any of us would like. From water bills to energy costs, all those things we need jumped up at the start of what has been cheerfully labelled ‘Awful April’.

“Those price hikes will be offset for some by the rise in the National Living Wage and increases to the state pension and benefits, which is another consideration for those Monetary Policy Committee members who will have to make their decision about where interest rates go next ahead of April’s inflation data.

“It’s an unenviable task made even more difficult by the battering from what some have now dubbed ‘Storm Donald’ as the US president’s messy tariff policy wreaks havoc with the global economy.

“At 2.6% inflation is ahead of the Bank’s 2% target but it’s likely to be sufficiently low to give rate-setters the green light to keep cutting the base rate, with markets pricing-in an 85% chance of a quarter percentage point cut at the next meeting.

“The bigger question is where do rates go next? We know increased household costs will colour next month’s data but Donald Trump’s tariff policy could potentially result in a dumping of lower-priced goods on UK shores. Concerns about global growth may keep the oil price subdued, though homegrown issues like increased labour costs could result in a significant fall in employment and lower wage growth.

“The Bank had forecast inflation to peak at around 3.7% in the summer, but that forecast could be scaled back as the spectre of a trade war looms over the global economy.”

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

26 March: Policymakers Keep Weather Eye On April Price Hikes

UK prices rose by 2.8% in the year to February, down from the 3.0% increase recorded in January, writes Kevin Pratt.

Today’s figures from the Office for National Statistics will be welcomed by the Chancellor, Rachel Reeves MP, as she adds the finishing touches to her Spring Statement, due later today. The high cost of borrowing is seen as one of the brakes on economic growth – a key goal of the Labour government.

However, the positive news will be tempered by the fact that significant inflationary pressures remain within the economy, including a raft of price increases in April.

February’s fall was attributed in part to a decline in the cost of women’s clothes. This was offset to a degree by a rise in the price of alcoholic drinks.

The modest reduction in the rate at which prices are rising may lead to the Bank of England reducing its benchmark Bank Rate, which stands at 4.5%, although it may wait for clearer signs it is winning the battle to bring inflation closer to the government’s target of 2%. It has said inflation may peak at 3.75% in the autumn.

The Bank Rate was held at its current level last week (see story below), and there will be another inflation announcement by the ONS before the next Bank Rate decision on 8 May. Around two million variable rate and tracker mortgages are adjusted in line with any change to the Bank Rate.

Savings interest rates are also heavily influenced by movements in the Bank Rate, with recent falls in the amounts paid by leading accounts attributed to the decline in the Rate from its recent high of 5.25% in August last year.

Inflation is likely to be stoked further by upcoming price increases, including a 6.4% rise in the energy price cap on 1 April, hikes to water, mobile and broadband bills, higher rates of vehicle excise duty, a £5 increase in the cost of a TV licence and a hefty near-5% rise in council tax for millions of households.

Employers are also warning that the increase to their National Insurance Contributions from 6 April will stymie growth by limiting recruitment at one end of the scale and triggering redundancies at the other.

Global issues such as the imposition of trade tariffs and geopolitical instability are also contributing to the pervading sense of gloom about the health and prospects of the economy.

According to the ONS, the UK’s rate of inflation was higher than that of France (0.9%), Germany (2.6%), and the EU average (2.7%) in the 12 months to February.

Danni Hewson, AJ Bell’s head of financial analysis, said: “This dip in inflation was slightly deeper than had been expected by economists, but it’s hard to get excited about one month’s data when we’re all hyper aware that things are about to get more difficult once again.

“In many cases, wage increases will help offset the price hikes hurtling our way, as will the uprating in pensions and benefits, though in most cases those extra pennies have probably already been spent.

“The big question on many homeowners or would-be homeowners’ minds will be whether the Bank of England cuts rates in May and how far they might fall by the end of the year. Expectation of a May cut has edged up slightly, but [the Bank] has a lot to consider, balancing the need to boost a stagnant economy with nudging inflation back towards target at a time global trade concerns are prevalent.”

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

20 March: Inflation, Tariffs And War Fears Rattle Policymakers

The Bank of England held its benchmark Bank Rate at 4.5% today amid fears that turbulence across the world economy could trigger higher inflation and hamper economic growth, writes Kevin Pratt.

The Federal Reserve, the Bank’s US counterpart, yesterday held rates in the range 4.25% to 4.5%. Both central banks are nervous about the potential inflationary impact of President Trump’s aggressive use of tariffs on goods imported to the US.

In the UK, the ‘wait-and-see’ approach of the Bank’s nine-strong Monetary Policy Committee, which voted 8-1 in favour of keeping any rate cut on ice, reflects key events in the coming days.

One member preferred to reduce the Bank Rate by 0.25 percentage points, to 4.25%.

Next Tuesday sees the release of inflation figures for February. The Bank uses high interest rates to keep a lid on prices, but January’s increase in the annual rate from 2.5% to 3% has stoked alarm about further rises in 2025, with the Bank’s own forecasts suggesting the figure might spike at 3.75% in the autumn.

The Chancellor, Rachel Reeves MP, will also deliver her Spring Statement – a Budget in all but name – next Wednesday, with expectations that she is prepping deep cuts in public spending, further destabilising the economy.

April will see employers’ national insurance contributions increase from 13.8% to 15%, and the point at which these payments will be required will fall from £9,100 to £5,000. Companies say prices will rise and jobs will be lost as a result of the changes.

The energy price cap will also increase on 1 April, by a shock 6.4%, delivering a further blow to household finances. Policymakers are also edgy about the potential for geopolitical conflicts to inflict economic damage, with uncertainty clouding peace initiatives in Ukraine and Gaza.

The next Bank Rate decision will be made on 8 May. In its commentary on today’s ‘hold’ decision, the Bank said it expects inflation to fall in the autumn, but says it will remain alert to signs of lasting inflationary pressures: “A gradual and careful approach to the further withdrawal of monetary policy restraint [by reducing Bank Rate] is appropriate.

“Should there be greater or longer-lasting weakness in demand relative to supply, this could push down on inflationary pressures, warranting a less restrictive path of Bank Rate. Should there be more constrained supply relative to demand and more persistence in domestic wages and prices, including from second-round effects related to the near-term increase in inflation, this would warrant a relatively tighter monetary policy path.”

The Bank Rate influences how mortgage lenders price their deals, although they also reference how much interest commercial banks charge each other for loans. These so-called ‘swap’ rates have edged down in recent weeks allowing some lenders to trim the cost of their mortgages. However, the long-term impact of today’s Bank Rate announcement on the cost of borrowing remains to be seen.

Savers will hope that returns on deposits will remain at current levels. The number of accounts paying 5% or more has fallen in recent months, reflecting the reduction in Bank Rate from its recent peak of 5.25% to today’s 4.5%.

Discussing the impact of the Bank Rate hold on mortgages, Matt Smith at property portal Rightmove said: “Now that this expected interest rate hold is out of the way, all eyes are on May’s decision, where the current forecast is a second cut of the year.

“Since the last decision in February, average mortgage rates have trickled downwards slightly but pretty much stayed flat. We’re seeing lenders try to price competitively where they can to capture business during some of the busiest months of the year for home-moving.

“However, there isn’t much wiggle room for lenders to offer cheaper rates, and hopefully a second cut can spur forward another wave of falling rates, and bring average rates closer to 4% rather than 5%.”

Commenting on the rate hold in the US, Isaac Stell at Wealth Club said: “The decision to pause [rate reductions] has come amid economic uncertainty caused by the rambunctious Trump administration and its policy of tariff whiplash.

“With such an unpredictable leader at the helm of the world’s largest economy, the scope for policymakers to make effective decisions diminishes with every new announcement.”

The imposition by the Trump regime of the next swathe of US reciprocal tariffs is slated for 2 April – a date hailed by the President as ‘Liberation Day’.

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

19 February: Hopes Fade For Near-Term Cuts To Bank Rate

The rate of inflation rose to 3% in the year to January, a steep uptick from the 2.5% recorded in December, writes Kevin Pratt.

The Office for National Statistics attributes the increase – which is beyond analyst predictions of a 2.8% rise – to higher prices for food, non-alcoholic beverages and transport costs.

The Bank of England said last month that it expects inflation to peak at 3.7% later this year as the economy is buffeted by inflationary pressures including higher rates of tax on alcohol introduced this month and the imposition of VAT on private school fees from the beginning of the year.

Energy bills are also expected to rise by around 5% from 1 April when the next price cap takes effect.

Businesses are also warning of wider price increases when their employer national insurance contributions increase in April.

The Bank’s inflation target is 2%. It uses higher interest rates to reduce demand across the economy and bring prices down, and today’s figure will stoke concerns that further cuts to the Bank Rate from its current 4.5% will be deferred.

The Bank Rate influences what lenders charge for mortgages and how much interest savers can earn on their deposits. It fell to its current level from 4.75% last month (see story below).

The next rate announcement from the Bank is due on 20 March. February’s annual inflation rate won’t be released until 26 March.

David Morrison at financial services firm Trade Nation said: “Today’s hotter-than-expected numbers will make it harder for the Bank of England to cut rates further. But markets have been expecting a pause in monetary easing following the Bank’s 25 basis point cut earlier this month.

“So, now it’s a question of how long that pause may be, and can we expect inflation to continue to trend higher from here?”

Nicholas Hyett at advisors Wealth Club said: “If there was any doubt about what the Bank of England would do at its March interest rate meeting there isn’t now. Headline inflation has jumped significantly, and came in some way ahead of market expectations.

“Higher prices for motor fuels and airfares have pushed up transport costs, while food and non-alcoholic drinks saw prices rise 3.3% year-on-year. Both will increase the squeeze on working households, as will the rise in council tax, which has seen owner-occupier housing costs rocket by 8% in 12 months.

“Making matters worse is the substantial uptick in core inflation – which strips out food and energy prices and is considered a better measure of domestically-generated inflation. With core inflation [at 3.7%] nearly twice the Bank of England’s target, we see little chance the Bank starts cutting rates again any time soon.”

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

6 February: Economy Braces For Inflationary Headwinds

Homebuyers and savers are digesting the news that the Bank of England is cutting its influential Bank Rate from 4.75% to 4.5%, writes Kevin Pratt.

The move, which follows a fall in the rate of inflation in December from 2.6% to 2.5%, could lead to cheaper variable rate and tracker mortgages but may also see lower returns on many savings accounts.

The Bank’s inflation rate target is 2%. It uses high interest rates to deter borrowing and reduce demand across the economy, which in turn puts downward pressure on prices. The Bank Rate is reduced when it wants to stimulate activity and encourage economic growth.

Commentators say the Bank Rate cut is a necessary boost for the UK economy, and expectations are high that further reductions will be made throughout 2025. However, there is concern that inflationary pressures may mean the Bank keeps the rate higher for longer.

Many businesses have said that they will need to increase prices because their employer national insurance contributions will rise from April. The minimum wage is also set to rise, further adding to their costs.

The potential for international trade spats in the wake of President Trump’s use of tariffs against China is also unsettling market-watchers.

The Bank Rate cut will not affect homeowners on fixed-rate mortgages, although a continuing downward trajectory would lead to cheaper deals being available at the end of the current term.

Those on variable rate and tracker mortgages should see a reduction in their monthly costs in their next payment.

The best instant access and fixed-rate savings accounts pay just under 5% per annum interest, although with the latter, you must tie up your money for at least a year to get this level of rate.

The Bank’s nine-strong Monetary Policy Committee voted 7-2 in favour of today’s reduction, with the two dissenters favouring a deeper cut to 4.25%. The Bank has conceded that inflation is likely to rise this year, to 3.7% from its current 2.5%, with rising energy costs taking a significant part of the blame.

The Bank also said it expects the economy to grow by just 0.75% this year, having previously forecast a growth rate of 1.5%.

Nicholas Hyett, at Wealth Club, said: “Recent economic data points to a slowdown in the UK economy – GDP came in lower than expected, inflation has fallen and unemployment has ticked up. The outlook is gloomy, too, with many companies thought to be considering job cuts before a rise in the living wage and higher national insurance contributions in April.

“Against that backdrop the Bank’s decision to cut rates is no surprise. Rate-setters and the government will be hoping a 0.25 percentage point cut provides the post January pick-me-up the economy needs.

“However, the real risks in the future are largely unknown. Will Trump’s trade war rock the global economy? Will the UK become a tariff target? How many jobs are at risk from rising labour costs? Will the Chancellor hike taxes again in the spring? With all those unknowable risks out there, this rate cut could be seen as much as a shot in the dark than a shot in the arm.”

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

15 January: Rising Pump Prices Keep Rate Above Target

Inflation edged down to an annual rate of 2.5% in December, from 2.6% the month before, providing a glimmer of hope that the Bank of England might cut interest rates at some point in the coming months, writes Kevin Pratt.

The modest fall in the rates at which prices are rising, which was not expected by most analysts, may not be enough to trigger a reduction when the Bank announces its next decision on 6 February as inflation remains above its target of 2%. The rate fell to 1.7% in September but jumped to 2.3% in October before hitting 2.6% in November.

Other economic data, such as the recent fall in the value of sterling and an increase in the cost of government borrowing, suggests the Bank Rate may remain at 4.75%.

Inflation would need to fall further and stabilise around the 2% mark before a cut would be deemed appropriate.

The Office for National Statistics attributed December’s fall in the inflation rate to lower prices in hotels and restaurants. It said the effect of this was offset by increases in the cost of motor fuel and secondhand cars.

Nicholas Hyett at advisors Wealth Club said upward pressure on prices will mount in the spring when changes announced in last autumn’s Budget take effect: “There’s a significant risk that inflation will kick off again later in the year.

“Employers are set to start paying higher rates of National Insurance in April, pushing up labour costs. That is likely to see prices rise in sectors like hospitality and retail that employ substantial numbers of people and where margins are already pretty thin.

“That risks sparking an inflationary spiral. It could be a tense few months as we wait and see how things play out.”

Analysts will also monitor the impact of President Trump’s economic policies when he takes office next week. He has promised steep tariffs on goods imported to the United States, which would adversely affect UK exporters.

Nathan Emerson, head of estate agent trade body Propertymark, remained optimistic about the prospects for the housing market, where mortgage rates are heavily influenced by Bank of England policy decisions: “With the rate of inflation remaining fairly static in December, and at a time when there are reports that the economy is being impacted by the after effects of the Budget and wider global events, this will likely bring a sigh of relief for many.

“If inflation continues to creep downwards throughout the rest of the year, it would be encouraging to see the Bank of England have the confidence to drop interest rates to levels that can provide additional comfort to consumers embarking on their next or first step on the housing ladder.”

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

19 December: Multiple Bank Rate Cuts Unlikely In 2025

Worries that the battle against inflation is not yet won have prompted the Bank of England to hold interest rates at 4.75%, writes Kevin Pratt.

Yesterday, the Office for National Statistics said that inflation for the year to November increased to 2.6% from 2.3% in October, having stood at 1.7% in September (see story below). The Bank’s inflation target is 2%. It said today that it expects it “to continue to rise slightly in the near term.”

The Bank deploys high interest rates to increase the cost of borrowing and thereby reduce economic activity, which eases inflationary pressures. In the summer, expectations grew that the Bank Rate could fall to 4.50% or even 4.25% by the year-end, with further falls in 2025.

This optimism has been dashed not only by rising prices but also by the adverse reaction to the Autumn Budget across the business sector. Firms face increased costs in April next year, when their National Insurance contributions will rise and wage bills will be pushed higher by an increase to the minimum wage.

The Bank’s nine-member Monetary Policy Committee, which sets the Bank Rate 10 times a year, voted 6 – 3 to hold rates at 4.75%, with three members preferring a cut to 4.50%. Its next meeting is on 6 February 2025.

Yesterday, the Federal Reserve, the Bank’s US equivalent, announced a 0.25 percentage point cut in its main interest rates, which now sit in a range of 4.25% to 4.50%. However, it signalled that there is no guarantee of further cuts next year.

Commenting on the hold in the Bank Rate, Laith Khalaf, head of investment analysis at AJ Bell, said: “Wherever you look, the green shoots of an inflation revival seem to be pushing up the turf. Private sector pay growth rose to 5.4% at the latest reading, and with minimum wage rising by 6.7% from April, that means more upward pressure on pay is in the post.

“Also arriving in April courtesy of the new Chancellor will be an increase in employer National Insurance, at least some of which will find its way into higher consumer prices.

“As inflationary forces gather, the Bank of England isn’t going to be gung-ho about cutting interest rates. Nonetheless, the fact three members of the MPC voted to cut the Bank Rate by 0.25 percentage points is a dovish signal which markets will likely respond to.

“The market is still pricing in two further rate cuts next year, but this is a big climb down in the course of just 12 months. At the beginning of 2024, the market was expecting no fewer than six interest rate cuts in the course of the year – we got two.”

The Bank Rate helps determine the cost of mortgages, and there were hopes that a rate cut would provide impetus to the housing market. Matt Smith at property portal Rightmove said: “While not the early Christmas present that many would have wanted, it was widely expected, and must be considered against a backdrop of inflation being at the top end of forecasts, and wages having increased at a higher rate than expected.

“We don’t expect any reductions in mortgage rates over the next few weeks, but as we progress into 2025, lenders are likely to look at ways to take advantage of increased demand as the busier home-buying season starts.

“We predict average mortgage rates could trickle slowly down towards around 4.0% next year, though this depends on the impact of a variety of unpredictable factors, including geo-political tensions and inflation.”

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

18 December: Prices Rising Above Bank Of England 2% Target

The rate at which prices are rising year-on-year increased to 2.6% in November, up from 2.3% the month before, writes Kevin Pratt.

annual inflation at 2.6% in November compared with 2.3% in October

annual core inflation (exc food and energy) at 3.5%, up from 3.3%

on a monthly basis, prices rose by 0.1% compared with a fall of 0.2% in November 2023.

The Bank of England’s target for inflation is 2%. Today’s figures from the Office for National Statistics have dampened hopes that the Bank will cut interest rates tomorrow when it meets to set the influential Bank Rate.

This rate, which helps determine the cost of mortgages and the return on savings, has been trimmed from 5.25% to its current 4.75% in recent months on the back of inflation figures below or closer to 2%.

But indications that inflationary pressures are lurking within the economy are likely to see the Bank stay its hand. The first rate-setting meeting in 2025 will be on 6 February.

Isaac Stell, investment manager at Wealth Club, said: “The strength of the latest inflation figures, coupled with Tuesday’s higher-than-expected wage growth data, may well put to bed the possibility of a pre-Christmas rate cut.

“Although the public may feel [Bank governor] Andrew Bailey and co are channelling their inner Scrooge, prudence on the Bank’s part seems sensible, as no one wants to see the inflationary ghosts of Christmas past return.”

Optimism about the continued downward path of the Bank Rate has been soured by the negative reaction of the business sector to the Autumn Budget. The Chancellor announced increases in employer national insurance contributions and a rise in the minimum wage, to take effect from April next year.

The fear is that prices will rise to counter these higher costs. The possibility of international trade spats and associated potential supply chain disruption in 2025 are adding to the gloomy outlook.

Stell added: “The indication of prices hikes have been coming thick and fast. There may be cuts to jobs and less generous pay rises to boot. Those hoping to see a continuous stream of rate cuts in 2025 will likely be disappointed.”

Nick Hale, head of house moving group Movera, said: “There is little festive cheer in today’s figure. Driven by higher energy costs and services inflation, the figure is even further adrift from the Bank’s target. Christmas is unlikely to come early on Thursday, as its Monetary Policy Committee is predicted to hold off on lowering rates.

“It would be good to think that the rise is a temporary blip. But there are too many unknowns, including the longer term impacts of the Budget, which has so far rattled business confidence.”

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

20 November: Steep Rise As Bank Of England Mulls Rates Move

Inflation leapt to 2.3% in the year to October from 1.7% the month before – a shade higher than economists were expecting. On a monthly basis, prices were up 0.6%, writes Kevin Pratt.

The blame for the increase has been laid at the door of energy prices, which spiked on 1 October when the energy price cap – which regulates how much suppliers can charge per unit of energy consumed, along with standing charges – shot up by 10%.

This rise, prompted by higher prices on wholesale markets, took the cap to £1,717 a year. That is the amount a household with typical consumption levels can expect to pay, and is £149 higher than previously.

Set quarterly by the energy market regulator Ofgem, the cap will rise again on 1 January 2025, this time by an estimated 1%, taking it to around £1,736 a year.

According to the Office for National Statistics, the core rate of inflation, which excludes volatile items such as energy, food, alcohol and tobacco, rose by 3.3% in the 12 months to October 2024, up from 3.2% in September.

The Bank of England pays close attention to inflation when setting its Bank Rate, which influences lending rates across the economy, including mortgages. The rate was reduced from 5% to 4.75% earlier this month, and the next decision is due on 19 December.

The Bank’s inflation target is 2%, but commentators believe October’s rise to 2.3% will likely be seen as a blip rather than a reversal of the recent downward trend.

Isaac Stell, investment manager at Wealth Club said: “The surprising strength of the latest inflation figures gives the Bank of England a conundrum. With economic growth in the UK stalling, rate cuts would seem like the appropriate medicine, but cutting rates into inflationary strength wouldn’t usually be what the economic doctors order.

“With inflation close to target and one-offs [such as the energy price cap hike] causing the latest spike, the Bank should feel confident about reducing rates by 0.25 percentage points in December, helping to ease the burden on consumers facing a rise in their heating bills as the winter weather sets in.”

Danni Hewson at AJ Bell sounded a note of caution about inflationary pressures in the economy: “No one will be surprised that the headline rate of inflation has ticked up again, however unwelcome it might be. Households across the country will be eyeing their thermostats as the cold snap bites, hyper aware that the cost of energy shot up at the start of October when the new price cap came into effect.

“At 2.3% inflation is only slightly above the Bank’s 2% target but it does disrupt a three-month downward trend and market expectation of a further interest rate cut in December is now only 16%, with almost half thinking that even February will be too early for the Bank to cut again. The fact that core inflation edged up a touch will give the Bank’s rate-setting committee pause for thought.

“Just at a point people were beginning to feel hopeful that the past couple of years of sky-high inflation was behind them, there’s niggling concern about what might be to come. Though there is no indication that the factors at play will result in anything like the 11.1% high from October 2022, those price increases are still being felt by us all.”

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

7 November: Bank Rate Down To 4.75%

Mortgage deals could be cheaper in the coming days and weeks following the Bank of England’s decision to cut its Bank Rate from 5% to 4.75%, writes Kevin Pratt.

The cut was expected because of the steep fall in the rate of inflation in September, from 2.2% to 1.7%. The Bank uses higher lending rates to sap demand from the economy in a bid to slow down rising prices.

Banks and building societies may now be thinking about trimming the cost of new loans for mortgage borrowers and those remortgaging their property to reflect the lower cost of institutional borrowing.

Existing fixed-rate deals will remain at their current prices while loans linked to the Bank Rate – known as trackers – will fall with immediate effect.

Lenders’ variable rate deals are also likely to fall, but the timing and size of reductions will vary by lender.

Borrowers tempted to remortgage away from their current loan to a cheaper offer should take into account the clutch of charges and fees they may encounter, including a possible early repayment charge, arrangement and legal fees, and the cost of a property valuation.

While today’s move by the Bank of England was not a surprise, forecasts about further cuts in December and in 2025 have been thrown into question by government borrowing and spending measures announced in last month’s Budget and Donald Trump’s victory in Tuesday’s US election.

If the new President follows through on promises to cut taxes and impose hefty tariffs on imports to the US, a likely consequence is an increase in the rate of US inflation in 2025. If the Federal Reserve – the Bank of England’s US equivalent – eventually raises interest rates in response, other central banks may be forced to follow suit.

That said, the Fed announced its own quarter-point cut to interest rates today, bringing them down to a range of 4.5% to 4.75%. This was in response to inflation in September falling to 2.1%, a whisker above the Fed’s target of 2%.

The Bank of England Governor, Andrew Bailey, told the BBC that, while the trend for UK interest rates to fall will continue, they will not be cut too quickly or by too much: “The path is downward from here. We’ll see how quickly and by how much. I do emphasise the word ‘gradual’ and the reason for that is there are a lot of risks out there in the world at large and also domestically.”

Responding to the Bank Rate cut, Nathan Emerson trade association of Propertymark said: “Today’s announcement will be welcome news for buyers, especially for those who may have been delaying any house move due to potential uncertainty on their overall affordability.

“Proposed changes to Stamp Duty thresholds from next April mean it’s highly likely we may see buoyant activity in the market across the winter months.”

Chancellor Rachel Reeves confirmed in the Budgeet that the threshold at which property buyers must state paying Stamp Duty in England and Northern Ireland will fall from £250,000 to £125,000 from 1 April 2025. The threshold for first-time buyers will fall from £425,000 to £300,000.

John Fraser-Tucker at Mojo Mortgages said: “This move by the Bank could mark a significant turning point for the mortgage market. This second rate cut of the year brings relief to both homeowners and potential first-time buyers.

“We’re optimistic this change will encourage mortgage lenders, who have recently raised their rates, to rethink their pricing strategies and lower their rates in the coming weeks.

“Existing mortgage holders should be pleased with this decision, as it presents new possibilities for securing better deals or benefiting from adjustments on current products, potentially easing financial pressures.

“If you’re planning to remortgage in the next six months, a mortgage broker can help you navigate the market and secure a new rate.”

Laith Khalaf at AJ Bell said: “This interest rate decision was widely anticipated, but the path to future cuts has been muddied by Rachel Reeves’ Budget and the election of Donald Trump as US president.

“Both these events have the potential to be inflationary, which would mean interest rates staying higher for longer. That doesn’t necessarily imply rates won’t come down, but the pace of decline is likely to be slower.

“The market is still pricing in another rate cut either in December or February, and then another one by May 2025. There are some more bullish voices out there, including Goldman Sachs, who have forecast UK base rate to fall to just 2.75% by next autumn. The fact the decision to cut rates was almost unanimous will put some powder in this argument.

“But if Donald Trump pushes ahead with a restrictive trade policy, that would really put the cat among the pigeons when it comes to UK inflation and interest rates.

The next Bank of England Bank Rate announcement is on 19 December.

October’s inflation rate will be announced by the Office for National Statistics on 20 November.

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

16 October: Steep Drop From 2.2% Likely To Spur Bank Rate Cut

Prices rose by 1.7% in the year to September, down sharply from 2.2% in August, thanks largely to falling fuel pump prices paid by motorists and lower airfares, writes Kevin Pratt.

This is the first time the annual rate of inflation has been below the Bank of England’s target of 2% since April 2021. It hit a recent peak of 11.1% in October 2022.

Some forecasters expect the Bank to cut its main interest rate from 5% to 4.75% at its next Bank Rate meeting on 7 November. This would stimulate activity by making borrowing cheaper and help ward off any threat of economic stagnation that might accompany a sustained below-target inflation rate.

The European Central Bank cut its main interest rate by 0.25 percentage points to 3.25% on 17 October, saying: “We did this because incoming data show we are well on track to reach our inflation goal.” Inflation in the eurozone in September also stood at 1.7%. The ECB’s target is 2%.

Lindsay James at Quilter Investors said: “With inflation falling below this level and the pace of wage growth slowing, the conditions appear ripe for another rate cut at the Bank of England’s next decision in early November, and maybe even the one after in December too.”

The Bank trimmed the Bank Rate from its recent high of 5.25% in August – the first cut since March 2020, when it reached 0.1%. This summer’s reduction indicated a growing belief that the battle against inflation was being won, but this outlook could be soured if geopolitical instability causes global economic disruption, including a spike in oil prices.

Jonny Black at investment company abrdn adviser said: “This is a promising sign for rate setters. Andrew Bailey [governor of the Bank] has hinted that, if the positive inflation trend continues, we could see a bolder approach to cutting interest rates. But with the geopolitical landscape remaining turbulent, there’s risk of volatility that could lead to sharper price rises.”

A number of mortgage lenders, including NatWest, Santander and Co-op, have bucked recent trends by increasing the cost of their loans in the past few days. Brokers suggest that, while the long-term trend for the cost of home borrowing is downwards, there may be periods where rates fluctuate to take account of broader volatility.

Discussing NatWest’s 0.3% hike in the cost of some of its mortgages, Nick Mendes at broker John Charcol said: “These increases mark a sharp reversal from recent months when rates have been falling. But it’s important to note that this does not necessarily signal the long-term direction of mortgage rates over the next 12 months.”

Isaac Stell, investment manager at Wealth Club, said: ” With inflation tumbling, the Bank should feel confident about stepping up to the crease at its November meeting.

“With declining private sector wage growth, falling prices, and a Government focused on tax rises, an easing of the burden for the public will be welcome. Will the Bank play with a straight bat or will they look to go big and swing for the boundary? Today’s numbers suggest they could well do the latter.”

September’s inflation figure is traditionally used to determine the rate of increase in certain benefits, including universal credit, the following April. Danni Hewson at AJ Bell says a 1.7% rise will put pressure on household budgets: “Today’s data is massively important for many people on low incomes who rely on benefits to help them get by.

“Over the past couple of years, they’ve seen quite chunky increases in the amount of cash that drops into their accounts every month but with inflation falling below the level that had been anticipated it sets up a benefit increase way below what they’ve come to expect.

“The most important thing to remember while thinking about inflation is that for the most part prices went up and stayed at their elevated levels. Wages have nudged higher, as have benefit payments, but most people will still find their standard of living is way below where it was before the pandemic.”

Figures out yesterday from ONS relating to average earnings confirm that State pensions will increase by 4.1% from April next year.

Under the terms of the government’s triple lock, State pensions rise each April by the highest of three measures: 2.5%, the rate of inflation in the preceding September (1.7%), or the rise in average earnings in the three months to the preceding July (now confirmed at 4.1%).

The current full state pension is £221.20 a week, or £11,502.40 a year. A 4.1% hike will take it to £230.30 a week, or £11,975 a year.

The ‘old’ basic state pension, paid to pensioners who retired before April 2016, is £169.50 a week, or £8,814 a year. With a 4.1% uplift applied, this will rise to £176.45 a week, or £9,175 a year.

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

19 September: Analysts Expect Cuts Before Christmas

The Bank of England held its main interest rate at 5% today despite a 0.5% percentage point cut by the US Federal Exchange last night, which lowered its lending rate to 4.75%, writes Kevin Pratt.

The Bank’s Monetary Policy Committee (MPC) remains concerned about ‘persistent’ inflation in the UK economy. Prices rose by 2.2% in the year to August, the same as the month before and just above the Bank’s 2% target, but in the service sector the figure was 5.6% (see story below).

Interest rates are raised and maintained at high levels by central banks to sap demand and thus ease inflationary pressures. This comes at the price of slowing economic activity, with individuals and businesses reluctant to borrow money for purchases and investment.

The Federal Reserve implemented its rate cut to stimulate the US economy after a range of indicators suggested there was a growing danger of recession if borrowing costs were not reduced. Further cuts are expected later this year and throughout 2025.

The MPC cut the Bank Rate to 5% from 5.25% on 1 August. Commentators believe it will be reduced at the next scheduled meetings in November or December.

Eight of the nine-strong Committee voted in favour of holding the Rate at 5% today, with one arguing for a cut to 4.75%. The Bank said the decision was determined “by the need to squeeze persistent inflationary pressures out of the system so as to return CPI inflation to the 2% target both in a timely manner and on a lasting basis”.

The Bank Rate influences borrowing and savings rates in the wider market, but many mortgage lenders have already cut their prices in recent weeks in expectation that the long-term trend in rates is downwards.

Ryan Davies at Bluestone Mortgages said: “Today’s decision will be a blow to borrowers across the country who were hoping for a further rate cut.

“However, it’s not all doom and gloom. Over the last few weeks, we’ve seen increased competition in the mortgage market, with a growing number of lenders now offering sub 4% mortgages.”

Dean Butler at Standard Life said: “There had been some discussion of a possible further move down to 4.75% this month following the first US rate cut in four years, however the latest inflation data showing the headline rate still above target with rises in service and core inflation seems to have put this to rest for now.

“The 10% energy price cap kicking in from 1st October seems likely to push headline inflation up further, so it seems safe to say any rate cuts in the near future will be incremental.

“This will of course remain a challenge for people with housing costs and unsecured debt like credit card balances, but savers continue to have the opportunity with rates on best-buy instant access cash savings accounts hovering around the 4.75% mark and some fixed deals over 5%.”

The next Bank of England rate announcements are on 7 November and 19 December.

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

18 September: US Leads Way With Chunky Base Rate Cut

The headline rate of inflation rose by 2.2% in the 12 months to August, unchanged from July, according to figures out today from the Office for National Statistics, writes Kevin Pratt.

But once volatile prices for items such as food, alcohol, tobacco and energy are excluded, the core figure jumped from 3.3% to 3.6%, while inflation in the service sector increased from 5.2% to 5.6%.

These figures may deter the Bank of England from reducing its main interest rate from 5% when its decision-making Monetary Policy Committee meets tomorrow.

The Bank Rate is used to control inflation, with higher borrowing costs seen as the most effective way stem price rises. It was reduced to its current level from 5.25% in August, the first cut since 2021.

Nicholas Hyett, investment manager at Wealth Club, said: “High core inflation increases the chances of the Bank choosing to leave interest rates unchanged.

“It’s a delicate balance to strike though, especially when headline numbers are driven by big movements in a single, seasonal variable like air fares [up 22.2% in August]. Leave rates too high for too long and risk an economic crash landing and a painful recession, cut them too soon and the danger of an inflationary tailspin increases.”

The Bank will also take into account today’s interest rate decision by its equivalent in the US, the Federal Reserve, which trimmed its rates by 0.50 percentage points so they now sit in the range 4.75% to 5%.

Both central banks – in common with others worldwide – have long-term headline inflation targets of 2%.

Commenting on the news that UK inflation was unchaged at 2.2% in the year to August, Richard Carter at Quilter Cheviot said: “Today’s figures will likely bolster predictions that the Bank will hold rates this week. It has already cautioned investors not to expect sequential rate cuts at every meeting given inflation is still not cemented at the 2% target and is likely to rise further as the year continues.

“Despite stagnating growth over the summer months there is not going to be a swift rate cutting cycle.”

The Bank decides interest rates 10 times a year, with the next meeting after tomorrow set for 7 November and the final one of 2024 on 19 December. Economists remain largely confident that, if there is no Bank Rate cut tomorrow, cuts will be forthcoming later this year and early in 2025, which had led to reductions in the cost of mortgages in recent weeks.

Commenting on the 0.50 percentage point reduction in rates by the Federal Reserve, James McCann at investment house abrdn said: “The Fed has started to take its foot off the brakes of the US economy as inflation cools and concerns mount over the growth outlook.

“This larger-than-usual move illustrates a degree of urgency at the Fed to start quickly dialling back policy restrictiveness. Indeed, its Committee members expect that this will be the first of a series of cuts, with rates to fall another 50 basis points by the end of this year, and 100 basis points in 2025.

“The key for the Fed now will be calibrating the pace of easing carefully as inflation continues to drift towards target and the economy slows.”

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

14 August: Energy Bills Falling More Slowly Reverses Recent Trend

Inflation in the year to July edged higher to 2.2%, up from the Bank of England’s target of 2% recorded for the 12 months to June, writes Kevin Pratt.

The rate at which prices are rising hit a recent historic high of 11.1% in October 2022. It has been falling since then thanks mainly to reductions in energy prices, which peaked in the wake of Russia’s invasion of Ukraine in February of that year.

July’s increase, expected by many economists, was blamed by the Office for National Statistics on gas and electricity prices falling by less than they did last year. Price reductions in the hospitality sector helped counter this upwards pressure.

Inflation data is scrutinised by market-watchers because the Bank of England uses interest rates to help achieve its 2% target, which is set by the government.

Last month the Bank reduced its main rate to 5% from 5.25%, reached in August 2023 in the battle against rising prices. It has stated that it expects inflation to fluctuate in the coming months, so today’s figure is not expected to alter its strategy of cutting borrowing costs, although the timing of further reductions remains uncertain.

The next Bank Rate decision is on 19 September, with August’s inflation figure due out the day before.

The latest US inflation figures are also out today, showing a 2.9% year-on-year increase in prices, just below expectations. This has prompted speculation that the US Federal Reserve will announce an interest rate cut when it next meets on 18 September.

Further Bank of England interest rate announcements are scheduled for November and December.

The 0.25 basis point fall in the Bank Rate in July triggered a wave of rate reductions in the mortgage market, with a number of lenders now offering 5-year fixed rates below 4%.

Peter Stimson at MPowered Mortgages said: “With inflation back above target, a base rate cut in September is now likely off the cards. However, there’s still the possibility for a cut before the year is out in what remains a highly fluid market.

“Even though inflation has risen, there is unlikely to be an impact on mortgage rates as this has already been priced-in. The current lending environment is nothing short of cut-throat. Competition between lenders is the most intense I have seen in the last 30 years.”

Ed Monk at Fidelity International said: “A rise in the headline rate of inflation is less important than a slight easing in core inflation – down from 3.5% to 3.3% – which suggests the trajectory for price rises is still downwards. Easing wage rises reported yesterday point to a similar trend and suggest we remain on track for further cuts to interest rates in the months ahead.

“Lower rates have tended to be positive for stock markets, but investors should always be aware of the wider picture – rates are coming down because there is less momentum in the economy. The Bank of England has begun to ease monetary policy and will be watching growth data closely for signs of a more sudden slowdown that could accelerate the timetable for rate cuts.

“As rates fall, cash will become less attractive. Many investors have sought the safety of cash deposits this year as rates have stuck above the rate of inflation, but they may be forced to reassess as interest rates fall.”

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

August 1: Bank Rate Pegged Down To 5% In Narrow Voting Split

The Bank of England’s Monetary Policy Committee (MPC) has voted to cut interest rates from 5.25% to 5%, marking the first cut to interest rates since March 2020, writes Jo Thornhill.

The MPC voted 5-to-4 in favour of the reduction to the benchmark Bank Rate, which had remained at a 16-year high since August last year. The four dissenting members of the Committee voted to keep the Bank Rate on hold at 5.25%.

In contrast, the vote was split 7-to-2 in favour of holding rates at the last MPC meeting in June.

Market predictions had initially expected ‘no change’ to rates today as, despite being at its 2% target, the Bank waited for inflation to settle. But yesterday’s news that the US Federal Reserve remained unchanged at its target range of 5.25% to 5.50%, with expectations of a cut in September, tipped the balance in favour of a cut for the UK.

While today’s rate cut is not expected to lead to a sustained campaign of reductions to Bank Rate, it will be welcome news to around 700,000 mortgage borrowers due to remortgage away from low fixed rates in the second half of 2024, according to UK Finance, as it’s likely to trigger reductions to remortgage rates.

However, many major lenders have already been cutting the cost of mortgage deals across the board as interest rates settled.

Borrowers paying tracker mortgage rates (which move directly in line with the Bank Rate) will see their monthly payments fall by up to £28 on average, according to UK Finance. This is an annual saving of £336.

The calculation is based on an average tracker mortgage size of £136,512 and an average tracker pay rate of 6.47% (before today’s rate cut), according to the banking trade body’s data.

Mortgage broker Nick Mendes at John Charcol said: “Today’s rate cut is a positive step for the property and mortgage market, marking the first interest rate cut in over four years, finally kick-starting the downward Bank Rate cycle.

“Positivity spreads quickly and while today’s rate cut would have already been priced in, this will undoubtedly revitalise market activity. Mortgage holders nearing the end of their fixed-rate period and prospective buyers can now make informed decisions with greater confidence, rather than delaying further.

“For borrowers approaching the end of their fixed-rate terms, this decision brings a much-needed sigh of relief following months of fluctuating mortgage rates and reductions not aligning with early market expectations.”

Mr Mendes pointed to Nationwide which recently became the first high street lender to reprice mortgage rates below 4% again, and said that other lenders are now expected to follow suit: “We can anticipate the downward trend in fixed-rate costs to continue now, as markets price in further rate cuts and lenders use every opportunity to stay ahead of the competition.”

Karen Barrett, chief executive and founder of Unbiased, the directory for independent financial advisors, said: “After months of waiting, the Bank of England has finally cut the Bank Rate, offering much needed relief to millions of households that have been struggling.

“This decision symbolises a significant turning point for our country – economically and psychologically – and raises hopes that this could be the start of our journey out of the woods.”

Ms Barrett added that savers should prepare for the eventuality that rates will now start falling and to make the most of high-interest accounts while they are still available.

But Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, warned that today’s cut will not lead to a rapid succession of further reductions to Bank Rate.

She said: “Inflation has the potential to nudge upwards later in the year when declines in energy prices in 2023 fall out of the annual comparison while Chancellor Rachel Reeves’ public sector pay rises could also have an inflationary effect, so the Bank of England may be cautious on the timing of its next rate move.”

The next Bank Rate announcement is scheduled for 19 September 2024.

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

17 July: Bank Of England Meets On 1 August

Inflation in the UK flatlined at the Bank of England’s target of 2.0% in the 12 months to June 2024, strengthening hopes that the Bank will reduce the Bank Rate from 5.25% to 5% when it announces its next decision on 1 August, writes Kevin Pratt.

This would prompt some mortgage lenders to follow suit, bringing relief to borrowers on variable rate deals and those coming to the end of relatively cheap fixed-term deals who need to make new arrangements. Many lenders have already reduced rates in expectation of a cut in the near future.

But the move would also likely lead to a reduction in the rates offered to savers, although the most competitive accounts would continue to pay more than 2.0%, providing a ‘real’ return above the rate of inflation.

The Bank increases interest rates when it wants to reduce economic activity and bring down inflation. The Bank Rate reached a 16-year high of 5.25% in August last year from a historic low of 0.1% in December 2021.

A modest amount on inflation is seen as essential for the economy to grow over the long term.

Some commentators have expressed concern about persistent inflationary pressures in the service sector, where inflation is running at almost 6%, which could lead hawks on the Bank’s Monetary Policy Committee to push for a delay in a cut in the Bank rate until the autumn.

At its meeting today (18 July), the European Central Bank held interest rates across the eurozone in the range 3.75% to 4.25%. This follow a cut announced in June – the first since 2019. The ECB gave no indications as to whether rates might be cut at its next meeting in September.

The Consumer Prices Index including owner occupiers’ housing costs (CPIH) rose by 2.8% in the 12 months to June 2024, again the same rate as the 12 months to May 2024. It showed a month-on-month increase of 0.2%.

Commenting on the figures, Tom Stevenson, investment director at Fidelity International, said: “A second consecutive month of headline inflation at target makes a cut in interest rates on 1 August more likely but not yet a shoo-in. The key questions for the Bank of England rate setters remain persistently high service sector inflation and wage growth.

“It is a sign of how far we have come in the fight with inflation that today’s repeat 2.0% reading elicited a shrug. It is only 20 months ago that the UK was an inflation outlier with prices rising at 11.1%. But policy makers are more concerned with the pace of price rises in the service sector, which accounts for 80% of the UK economy, and which remained unchanged at 5.7%. Core inflation, excluding energy and food, was also flat at 3.5%.

“Tomorrow the focus will be on the employment data, which is forecast to show only a modest decline in basic wage growth from 6% to 5.7%. Wages are a key component of service sector inflation.

“The decision on whether to cut interest rates from a 16-year high of 5.25% next month remains on a knife edge.”

Jonathan Bone, mortgage lead at our broker partner Better.co.uk, said: “There are high hopes that interest rates will be cut next month. However, economists are warning that inflation could shoot back up later this year, which might make the Monetary Policy Committee cautious about acting prematurely.

“If you’re one of the 1.5 million homeowners who are set to remortgage this year, don’t forget that it isn’t just interest rates that will impact how much you pay. Some lenders also charge fees for remortgaging, ranging from £50 to £1,500, which can significantly affect how much you’ll pay during your initial payment period if you fix your rates for a set period.

“Sometimes, opting for a lender with a higher interest rate but no fees will work out cheaper overall. Speak to a mortgage broker who can help you find a deal that works for you.”

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

20 June: Market Eyes August For Possible Cut To 5%

The Bank of England has kept borrowing costs at a 16-year high of 5.25%, the seventh occasion since August last year that it has left the Bank Rate unchanged, writes Andrew Michael.

Today’s announcement saw the Bank’s Monetary Policy Committee (MPC) decide by seven votes to two to maintain the Bank Rate at its present level. The two dissenting votes were each in favour of a quarter of a percentage point rate reduction.

The Bank’s announcement echoes a recent decision by the US Federal Reserve, which also continued to keep borrowing costs on hold.

Explaining today’s decision, Sir Andrew Bailey, Bank of England governor, said: “We need to be sure that inflation will stay low and that’s why we’ve decided to hold rates at 5.25% for now.”

The MPC said it would “continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation”.

The next Bank Rate announcement is due on 1 August, when the belief is that it may fall to 5%, although there are suggestions the Bank might wait to see if there is any economic fall-out from the General Election on 4 July.

The Bank of England, the Fed and the European Central Bank (ECB), along with a number of other leading central banks, are required to keep inflation at 2% over the long term.

In response to soaring inflation levels that beset the UK during 2022 and 2023, the Bank raised borrowing costs 14 times in a prolonged sequence of interest rate tightening.

The strategy has proved successful, with UK inflation dropping from a high of 11.1% in October 2022 to yesterday’s official figures that showed the Bank reached its 2% target in the year to May.

Today’s announcement means that millions of borrowers on variable rate and tracker mortgages and loans should not experience any direct impact on their repayments. Lenders, however, can alter variable rate products as they see fit.

However, the decision to maintain borrowing costs puts the Bank of England at odds with both the European ECB and the Swiss National Bank (SNB), which have each reduced their respective headline rates of interest in recent weeks.

Earlier today, the SNB reduced borrowing costs by a quarter of a percentage point, to 1.25%, having also delivered a surprise rate cut of the same amount in March.

Earlier this month, the ECB announced a first interest rate cut since 2019 for the eurozone economic bloc, where rates now stand in a range between 3.75% and 4.25%.

Today’s decision by the Bank left experts at odds with each other about if, or when, the first rate reduction will take place.

Julian Howard, chief multi-asset investment strategist at GAM, said: “The Bank of England left interest rates unchanged today at 5.25%, but the path appears increasingly clear for some easing at the August meeting. Inflation has come right down to the target level of 2%, unlike in the US and, to an extent, Europe.

“Some risks remain, however. The UK is in the middle of an election campaign and a potential Labour landslide could unsettle markets, in particular the currency. Sir Keir Starmer has come under pressure in recent days on the issue of tax and spending. Sterling will appreciate neither unfunded spending, nor a heavier tax burden.

Lindsay James, investment strategist at Quilter Investors, said: “This decision is no real surprise given month-on-month figures suggest inflation is unlikely to remain at 2% for long. It is instead expected to rise again later this year and ultimately settle between 2% and 3%.

“Until recently, markets had been pricing in several BoE rate cuts this year, with the first previously expected in the summer. Given the hesitation around inflation, it is looking increasingly likely that the first cut will not materialise until November which means we could see just one or two cuts from the BoE this year after all.”

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

19 June: Bank Of England Expected To Hold Borrowing Costs At 5.25%

Annual inflation fell to 2% in the year to May 2024, its lowest level since July 2021, down from 2.3% recorded a month earlier, Andrew Michael writes.

This puts the rate at which prices are rising at the Bank of England’s long-term target, set by the government. But commentators say the news is unlikely to prompt the Bank to reduce borrowing costs when it announces its next Bank Rate decision tomorrow.

Today’s announcement from the Office for National Statistics (ONS) will be welcomed by individuals and businesses alike who endured a prolonged period of soaring prices through 2022, when the inflation figure hit 11.1%. It remained elevated for much of last year.

The monthly reading of the Consumer Prices Index (CPI) showed that prices rose by 0.3% in May compared with a figure of 0.7% a year earlier.

According to the ONS, the largest downward contribution to today’s headline figure came from food, with prices falling this year having risen at the same stage a year ago. Offset against this was the rising cost of motor fuel.

Core CPI, which omits volatile data covering food, energy and tobacco, stood at 3.5% in the year to May, compared with 3.9% a month earlier.

CPI including owner-occupier costs (CPIH) stood at 2.8% in the year to May 2024, compared with 3.0% 12 months earlier. On a monthly basis, CPIH rose by 0.4% in May 2024 against a figure of 0.6% for the same month last year.

Luke Bartholomew, deputy chief economist at abrdn, said: “The fall of headline inflation back to target was expected, but will still come as extremely welcome news to the Bank of England. The big question now is whether underlying inflation pressures in the economy are consistent with inflation staying around 2% in the medium term, or whether inflation will start to edge higher again once favourable base effects fade.

“On that front, there is still evidence of residual stickiness in services inflation, reflecting the strength of wage growth recently. That is why an interest rate cut tomorrow is still very unlikely.”

Lindsay James, investment strategist at Quilter Investors, said: “Given inflation peaked at over 11% two years ago, this is a big occasion for a UK economy that appeared blighted by inflation worse than comparable peers. That said, it is possible this joy will be short-lived. Much of the fall in recent months has been driven by the energy price cap, as well as food prices, which will be a diminishing factor in future months.

“This is not necessarily job-done-and-victory-declared for the Bank of England. The cost-of-living crisis persists and, with prices in many areas of the economy still increasing faster than the headline rate, many won’t feel better off purely because inflation has hit 2%. This milestone being reached also does not mean a rate cut is coming tomorrow.”

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

12 June: Market Remains Hopeful For Rate Cut Later This Year

The US Federal Reserve has held interest rates in a target range between 5.25% and 5.5%, a 23-year high, as the world’s largest economy continues to fight stubbornly elevated inflation, Andrew Michael writes.

The Fed’s rate-setting Federal Open Markets Committee (FOMC) announced today that it would maintain US borrowing costs at the same level as they have been since July 2023.

Explaining its decision, voted for unanimously by the 12-member FOMC, the Fed said: “The Committee judges that risks to achieving its employment and inflation goals have moved toward better balance over the past year. The economic outlook is uncertain, and the Committee remains highly attentive to inflation risks.”

Earlier on Wednesday, official consumer price index (CPI) figures from the US Bureau of Labor Statistics showed that annual US inflation rose by 3.3% in the year to May, down slightly on the figure of 3.4% recorded a month earlier.

The reduction was not sufficient to prompt an interest rate cut as early as today, but commentators are optimistic that the downward direction in the inflation figure will eventually result in a loosening of US monetary policy.

Chris Beauchamp, chief market analyst at online trading platform IG, said: “Just when all hope of a rate cut in 2024 seemed lost, today’s CPI reading has provided fresh reasons to expect a cut this year.”

Along with other central banks worldwide, including the Bank of England and the European Central Bank (ECB), the Fed is tasked with maintaining inflation at a rate of 2% over the long term.

Last week, the ECB joined the Swiss National Bank, Sweden’s Riksbank and the Bank of Canada in cutting rates by a quarter of a percentage point.

Commenting on today’s events in the US, Lindsay James, strategist at Quilter Investors, said: “With mixed signals coming from the labour market, showing strong payrolls data alongside rising unemployment and falling vacancies, the picture of a gradually slowing economy is not yet enough to ring alarm bells at the Federal Reserve, who remain laser-focused on price stability.

“With the main lesson from the ‘Great Inflation’ period of 50 years ago being that to cut interest rates too early can prove disastrous – both for the economy and for one’s reputation in the history books – the Fed will be anxious to avoid repeating the monetary mistakes of the 1970s. For now, one rate cut this year remains a sensible prediction.”

On Thursday 20 June, the Bank of England will announce its latest Bank Rate figure, which dictates borrowing costs in the UK. The Bank Rate currently stands at 5.25%, while UK inflation in the 12 months to May 2024 was 2.3%.

James McCann, deputy chief economist at abrdn, said: “The Fed unsurprisingly left policy unchanged but continues to just about keep the door open to rate cuts this year.”

Julian Howard, chief multi-asset investment strategist at GAM Investments, said: “While US headline CPI has fallen from its 9.1% peak in June 2022 to 3.3% today, the uncomfortable reality is that the ‘mid-threes’ is where inflation appears to have got stuck since the summer of 2023.

“Where does all this leave investors? Beyond the inevitable obsessing in the aftermath of today’s decision over whether one or two rate cuts are now going to be priced in before the end of the year, it’s probably fair to say that rate-sensitive investments… look set for continued volatility.”

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

6 June: Eurozone Headline Rate Falls From 4.5% To 4.25%

The European Central Bank (ECB) announced today that it is cutting borrowing rates for the eurozone by 0.25 percentage points, marking the first decrease since 2019, writes Bethany Garner.

Following today’s announcement, which was widely expected across the financial community, the central bank’s main refinancing rate is 4.25%, down from its all-time high of 4.50%.

The ECB’s marginal lending facility has dropped to 4.50%, while its deposit rate now sits at 3.75%.

Explaining its decision to cut rates, the ECB said: “Based on an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission, it is now appropriate to moderate the degree of monetary policy restriction after nine months of holding rates stteady.

“Since the Governing Council met in September 2023, inflation has fallen by more than 2.5 percentage points and the inflation outlook has improved markedly.”

The ECB has not committed to further cuts in the near future, however. It added: “Interest rate decisions will be based on its assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation and the strength of monetary policy transmission. The Governing Council is not pre-committing to a particular rate path.”

Today’s cut comes despite the recent uptick in eurozone inflation, which measures changes to consumer prices in the 20 countries that use the euro.

The figure nudged up from 2.4% in the year to April, to 2.6% in the year to May, according to Eurostat, moving further from the ECB’s 2% inflation target.

In reducing rates, the ECB follows in the footsteps of the Swiss National Bank, Sweden’s Riksbank and the Bank of Canada, each of which announced a 0.25 percentage point cut in their central bank base rates in March, May and June, respectively.

Canada’s move was particularly significant given its membership of the G7 economic bloc – it is the first country in the group (which also includes the UK, US, Germany, France, Italy and Japan) to announce a base rate cut. It fell from 5.00% to 4.75%.

It is widely expected that the Bank of England (BoE) will announce a Bank Rate cut at its next announcement on 20 June, with the expectation that it will fall from its current 15-year high of 5.25% to 5.00%.

In the UK, consumer inflation stood at 2.3% in the year to April, edging towards the BoE’s 2% target (see story below), and paving the way for rate cuts.

There has been speculation that cutting the Bank Rate in the weeks before the General Election on 4 July might be seen as a political move, although the counter-argument runs that not cutting it in the face of compelling evidence to do so could also be seen as politically motivated.

Commenting on the ECB decision, Lindsay James, investment strategist at Quilter Investors, said: “The ECB has stolen a march on the Bank of England and Federal Reserve – who are both potentially still a few months away from cutting – and will breathe life into an economy that desperately needs some form of stimulus.

“While this news was expected, it will no doubt provide relief to consumers and businesses on the Continent. Ever since Russia’s invasion of Ukraine, Europe has struggled to combat the economic shock this produced, but signs are now improving, although uneven across the continent.”

Susannah Streeter, head of money and markets, Hargreaves Lansdown, said: “ECB policymakers are expected to hit the pause button now, as sticky inflation has returned as a worry. While rates went straight up like a rocket, they look likely to descend in bumpy fashion.”

“The ECB decision will raise hopes that UK interest rates will also be brought down sooner rather than later. The data coming in over the past few days has been more positive for the Bank of England, indicating that price pressures are easing.”

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal limits 3 Chip Instant Access Account Start Saving On Chip’s Website Use promo code ‘INSTANTACCESS’

22 May: April Inflation Lands Within Whisker Of BoE Target

Steep falls in gas and electricity prices helped annual inflation to fall sharply to 2.3% in the year to April, down from 3.2% a month earlier, writes Andrew Michael.

Today’s announcement from the Office of National Statistics (ONS) puts the figure at its lowest since July 2021. The Bank of England’s inflation target is 2%.

The news offers hope of an interest cut from the Bank of England as early as June this year. The decision will be announced on 20 June. The day before, the ONS will announce the inflation figure for May.

The Bank next meets to determine the level of the Bank Rate in August.

According to the ONS, the monthly reading of the Consumer Prices Index showed that prices rose by 0.3% last month, compared with a 1.2 percentage point increase in April 2023.

Core CPI, which leaves out volatile data covering energy, food, alcohol and tobacco, stood at 3.9% in the year to April compared with 4.2% a month earlier.

CPI including owner-occupier costs (CPIH) rose by 3.0% in the year to April, down from 3.8% in March.

Grant Fitzner, ONS chief economist, said: “There was another large fall in annual inflation led by lower electricity and gas prices, due to the reduction in the Ofgem energy price cap.”

The cap fell by over 12% from 1 April to £1,690 for a household with typical consumption. It is expected to fall below £1,580 from 1 July.

Fitzner added: “Tobacco prices also helped pull down the rate, with no duty charges announced in the Budget. Meanwhile, food price inflation saw further falls over the year. These falls were partially offset by a small uptick in petrol prices.”

In recent years, the Bank of England has struggled to keep inflation in check thanks to the economic turmoil following Covid-19, supply chain bottlenecks and geo-political tensions.

In its bid to quell rising prices, the Bank has maintained UK borrowing costs at a 15-year high of 5.25% since August last year. Reacting to today’s news, commentators remained unsure about the possibility of a June cut.

Lindsay James, investment strategist at Quilter Investors, said: “Today’s inflation figure still puts the UK on course this summer for its first rate cut in more than four years. The fact the headline rate begins with a ‘two’ is incredibly symbolic given the events since the pandemic and the fact inflation was over 11% less than two years ago.”

Alice Haine, personal finance analyst at Bestinvest, said: “Households can breathe a sigh of relief after the UK’s headline inflation rate tumbled to 2.3% in the 12 months to April, as the runaway price rises that ignited the cost of living crisis finally beat a retreat.

“With inflation closer to the Bank of England’s 2% target, all eyes are pinned on next month’s interest rate decision to see if the central bank will deliver more summer cheer with a rate cut. While the possibility of a summer cut is being floated by members of the rate-setting Monetary Policy Committee (MPC), whether it happens in June or August remains to be seen.”

Neil Birrell, chief investment officer at Premier Miton Investors, said: “UK inflation is following the trend elsewhere and is proving to be more resilient than hoped. It is not getting back to target as fast as the Bank of England would like, which will probably delay the first interest rate cut.”

Featured Partner 1 Raisin UK Manage all your savings in one place Access to competitive rates with specialist and challenger banks. Explore easy access, fixed rate bonds and notice accounts 1 Raisin UK Start Saving On Raisin’s journey 2 Chase Easy Access Savings Account Open up to 10 saver accounts Withdraw funds whenever you need without any charges 2 Chase Easy Access Savings Account 3.00% AER (variable) 3 Chip Instant Access Account Grow your savings with competitive rates 4.56% AER Instant access to funds with no withdrawal

Jerome Powell, the chairman of the US Federal Reserve, is being pushed against the wall by President Trump. President Donald Trump said Federal Reserve Chair Jerome Powell’s termination from his position can’t come quickly enough.

Trump has been an advocate of lower interest rates and has again argued that the US central bank should have lowered interest rates already this year, and in any case, should do so now.

In a statement on his Truth Social platform, Trump stated that Powell is once again late in cutting rates, despite the fact that other world banks are doing so and oil and egg prices are decreasing.

Trump wrote – “The ECB is expected to cut interest rates for the 7th time, and yet, “Too Late” Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report which was another, and typical, complete “mess!” Oil prices are down, groceries (even eggs!) are down, and the USA is getting RICH ON TARIFFS. Too Late should have lowered Interest Rates, like the ECB, long ago, but he should certainly lower them now. Powell’s termination cannot come fast enough!”

It was unclear whether the post implied Trump was referring to the end of Powell’s term or aiming to oust Powell as chair. Powell’s term is set to expire in May 2026 while his term as a governor lasts until February 2028.

Inflation in the US is trending lower, but the next immediate challenge for the Fed is the impact of tariffs that may lead to the re-emergence of inflation.

Also Read – US CPI Data Released: Annual inflation rate in the US eased for a second consecutive month

Yesterday, while speaking at The Economics Club of Chicago, Chair Powell warned that higher tariffs could increase inflation and hinder growth, undermining the Fed’s efforts to strike a balance between price stability and employment.

“As we learn more, we will continue to update our assessment, particularly about whether any price increases sparked by the tariffs appear to spark only a temporary or a more persistent rise in inflation. For now, he said, the Fed could keep its benchmark interest rate steady to wait for greater clarity before considering any adjustments to our policy stance,” Powell said.

The Federal Reserve’s benchmark interest rate has remained unchanged at 4.25%-4.5%, since December.

David Russell, Global Head of Market Strategy at TradeStation. “Jerome Powell just laid down the law with Trump. He emphasized that tariffs were significantly larger than expected, which could lead to persistent higher inflation and lower growth. It was a clear warning about stagflation, and a declaration that the Fed won’t enable the White House with rate cuts.”

Before becoming the president for the second time, in December 2024, in an interview, Trump stated that he will not attempt to unseat Federal Reserve Chair Jerome Powell when he assumes office in January. “No, I don’t believe that. When asked if he would try to dismiss Powell, whose term expires in 2026, Trump responded, “I don’t see it.”

At that time, when asked on his removal by the President, Powell said he would refuse to leave office early if Trump tried to oust him, arguing that removing him, or any of the other Fed governors, ahead of the end of their terms is “not permitted under the law.”

Incidentally, President Donald Trump appointed Jerome Powell to head the Federal Reserve in 2017, denying Janet Yellen a second term, expressing confidence that the fellow Republican would be able to manage and guide the largest economy in the world through “any challenges” with his leadership and expertise.

Federal Reserve Chair Jerome Powell, shown here at a press conference last month, said Friday that the central bank is not in a hurry to cut interest rates.

A lot has been made of President Donald Trump’s past attacks on Fed Chair Jerome Powell, and Trump’s disregard for the independence of the U.S. central bank has long had economists on edge.

But this year, Trump may just be onto something. He has consistently called for the Fed to cut interest rates as soon as possible, and some economists now think that would be a smart move.