Bank of England Forecasts Prolonged Period of Higher UK Interest Rates

Interest rates will stay higher for longer, the Bank of England says

The Bank revealed the tactic to curb price growth as it announced another rise in rates to 5.25% from 5%. It is the 14th increase in a row and takes borrowing costs to a fresh 15-year high.

Bank of England cuts economic growth forecasts

• The Bank also cut its forecasts for economic growth
• UK gross domestic product (GDP) is forecast to grow by 0.5% in 2024 and 0.25% in 2025
• GDP growth is expected to remain below pre-pandemic rates for some time

Inflation remains high

• Inflation slowed to 7.9% in June, but remains nearly four times higher than the Bank of England’s 2% target
• The Bank plans to keep interest rates elevated until inflation returns to the target sustainably

Governor Andrew Bailey emphasizes importance of falling inflation

Governor Andrew Bailey said: “Inflation is falling and that’s good news. We know that inflation hits the least well-off hardest and we need to make absolutely sure that it falls all the way back to the 2% target. That’s why we’ve raised rates to 5.25% today.”

Longer timeline for inflation target

The Bank expects inflation to hit its 2% target between April and June in 2025, rather than the first three months of 2025 as previously predicted.

Conclusion

The Bank of England has announced a further increase in interest rates to tackle high inflation. While this is expected to slow economic growth, the Bank believes it is necessary to bring inflation back to its 2% target sustainably. Governor Andrew Bailey emphasized the importance of falling inflation, particularly for the least well-off. The Bank also revised its forecast for GDP growth, which is expected to remain below pre-pandemic rates for some time.