BoE seen to hold Interest rates in August

Interest rates in the UK are expected to be held again next month, rather than cut for the first time in over four years, according to Jonathan Haskel, a member of the Bank of England’s Monetary Policy Committee (MPC).

The UK central bank has kept interest rates at a 16-year high to slow consumer prices rising, but higher rates have pushed up the cost of borrowing, including for mortgages. The Bank previously hinted that rates could be cut in August after official figures showed inflation had slowed to 2%, which is in line with its target.

Financial markets have priced in a roughly 60% chance that rates will be cut next month for the first time since 2020. Haskel, who voted in favor of holding rates in June, believes his fellow policymakers should remain cautious due to concerns over the UK’s job market and worker shortages. He said while there were “considerable encouraging signs” on inflation falling, the rate would actually remain above 2% “for quite some time.”

Some mortgage lenders are factoring in a drop in the benchmark rate as part of wider considerations when setting the interest rates they charge on new fixed deals. They also want to ensure they are competitive but not over-run by applications for mortgages they then struggle to process. Nationwide and Virgin have become the latest to reduce rates, following other lenders in recent weeks.

The Bank of England is independent of the government and its main role is to keep inflation stable at 2%. In response to high inflation, the Bank has raised and then kept interest rates at a high level. The Bank has also forecast that inflation could tick up slightly again in the coming months.