The Bank of England’s Monetary Policy Committee will meet for the third time this year at midday today to announce whether or not the Base Rate will change this month.
The Base Rate, which significantly influences savings and mortgage interest rates, was increased 14 times consecutively from December 2021 to counter the UK’s escalating inflation rate. It has since been held at 5.25 percent from August 2023.
Despite calls to lower interest rates due to a decline in the month-on-month inflation rate since its peak of 11 percent in October 2022, as well as stagnant GDP growth tipping the country into a technical recession last year, the MPC has upheld its commitment to reducing inflation to the Government-set target of two percent by keeping the Base Rate high.
However, the MPC votes were caught in an unusual three-way during the last meeting held in February, indicating a growing divergence in opinions on the appropriate course of action. Three committee members voted to hold the Base Rate at 5.25 percent, one voted to reduce it, and two voted to hike it.
Analysts widely expect another freeze at 5.25 percent today, as inflation holds steady at 3.2 percent and GDP showed signs of improvement in the first quarter. Others have suggested this decision could lead to “deflation or a recession”.
The Institute of Economic Affairs, a group of independent economists who shadow the Bank of England, has called for interest rates to be cut substantially and immediately.
Dr Andrew Lilico, chair of the shadow Monetary Policy Committee and executive director of Europe economics, said: “The Bank of England was too slow raising rates when inflation was rising because it missed the clear message from rapid growth in the money supply data.
“It has made a similar mistake in recent months but in the opposite direction: money supply has contracted or grown only far too slowly for many months, yet the Bank has failed to cut rates.
“The consequence so far has been that inflation is well below what the Bank predicted. The consequence in the future will be inflation significantly under-shooting the target and economic growth being damaged. Rates should be cut immediately.”
Others argue that it’s still premature to reduce rates, advocating for the MPC to wait until the European Central Bank (ECB) makes the first move – an event highly anticipated to occur in June.
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