Homeowners across the UK are hoping that the Bank of England will decide to avoid raising interest rates on Thursday for the first time in nearly two years, a decision that would come on the heels of similar action by the US Federal Reserve.
Following Wednesday’s news that UK inflation fell unexpectedly in August to 6.7 per cent , its lowest level since Russia invaded Ukraine, expectations have grown that the Bank of England will opt to keep its main interest rate unchanged at a 15-year high of 5.25 per cent. Before the inflation figures were released, most economists thought the central bank would raise its key borrowing rate once again by a quarter of a percentage point to 5.5 per cent. That’s because inflation is still way above the bank’s target rate of 2 per cent and higher than in any other Group of Seven major economy.
Now, financial markets foresee the decision going either way. Even if there is a rate hike, economists expect the bank to indicate that borrowing rates have peaked — to the relief of millions of homeowners who are facing higher mortgage rates. Central banks worldwide appear to be near the end of an aggressive rate-hiking cycle meant to curb an outburst of inflation triggered by the bounceback from the COVID-19 pandemic and Russia’s war in Ukraine.
The US Federal Reserve left rates unchanged on Wednesday. Suren Thiru, economics director for chartered accountant group ICAEW, said raising interest rates in the UK would be a “misstep” following the surprise fall in inflation.