Bank of England keeps interest rates at 5.25% to ease pressure on homeowners

The Bank of England kept interest rates at the same level on Thursday as it continues to await further evidence of falling inflation.

Ahead of Thursday’s announcement, financial markets overwhelmingly forecast that the benchmark rate would remain unchanged at 5.25% for the fifth consecutive time.

Click here to view our live coverage of the interest rate announcement.

Homeowners’ interest rates rose 14 times in a row in 2022 and the first half of 2023, from 0.1% to the current rate, prompting a surge in mortgage lending.

The Bank of England raised interest rates so quickly to curb inflation, which has soared to 11% in 2022. The Bank of England’s target is to reduce inflation to 2%.

Members of the central bank’s Monetary Policy Committee (MPC), which sets interest rates, were pleased that inflation fell to 3.4% on Wednesday, below analysts’ expectations of 3.5%. This is the lowest level of inflation since September 2021.

Official data showed consumer price index (CPI) inflation fell from 4% in January as rising costs for food and eating out slowed.

Chancellor Jeremy Hunt suggested a “decisive” fall in inflation could give him room to further reduce national insurance, but played down suggestions in the autumn statement that this would mean tax cuts ahead of the election.

Hunt said on Wednesday: “Inflation has not only fallen significantly but is expected to reach the 2% target within months.

“This lays the foundation for better economic conditions and can further our ambitions of boosting growth and raising working wages through lower National Insurance, as we work to abolish double tax on jobs.”

The better-than-expected data led economists to speculate that the central bank could begin cutting interest rates later this summer, taking rates as low as 3% by 2025.

Paul Dales, chief UK economist at Capital Economics, said on Wednesday, the day before the rate announcement: “We think inflation will fall below 2% in April and then fall back to 1%, This suggests that the Bank of England may have to start cutting interest rates. Rates will be lowered in the summer and will fall to 3% next year.”

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