Interest Rates to be Held at 5.25% Despite Inflation Drop

Interest rates are set to be held at 5.25 per cent by the Bank of England, despite inflation hitting the 2% target level for the first time in three years.

Rates are currently at a 16-year high, yet most economists predict rates will not be cut, holding at 5.25 per cent for the seventh time in a row.

Economists predict the Bank will take a cautious approach to the fall of inflation, waiting to see if it sticks at 2 per cent over the summer months, with a first rate cut now likely to be expected in Autumn.

Khalid Talukder, Co-Founder of DKK Partners, commented: “Sky-high inflation has caused a major headache for businesses over the past few years, undermining confidence in the economy and limiting investment. Now that inflation is back at the target level, the challenge for the incoming government and Bank of England is to keep it there.”

“If they are able to do that, business confidence will soar, promoting innovation and investment across the economy and helping business leaders to make long-term decisions such as international expansion into new emerging markets, which will in-turn foster international collaboration and further boost economic growth.”

The decision by the Bank of England comes just weeks away from the UK general election as parties release their economic policies for the years ahead.

The Conservatives have already claimed that inflation falling to 2 per cent, hitting the Bank of England’s target level for the first time since July 2021, is proof that their “difficult decisions” were paying off.

Meanwhile, Labour argued that pressures were “still acute”.

Derek Mackenzie, CEO of Investigo, part of The IN Group, commented: “It’s not been an easy time for business over the past few years, navigating a turbulent market restricted by high inflation. Concerns over the economy have had a significant impact on businesses, limiting spending and resulting in cuts in key areas such as technology, which has prevented growth. In fact, half of boardroom leaders admitted to slashing their tech budgets over the past year alone, according to our Tech and the Boardroom research.”

“Now that inflation is back on target, it is essential for the boardroom to invest in technology to drive digital transformation, boost efficiency and fuel growth. Tech development is so fast-moving, as seen by the rise of AI, and the boardroom can’t afford to wait otherwise they risk being left behind.”

Sanjay Raja, Deutsche Bank’s Chief UK economist, says: “While calls for an imminent rate cut will grow, given headline CPI’s descent to 2%, there’s likely to be growing concerns around the stickiness surrounding services inflation.”