BoE’s big hike unlikely after inflation surprise

The Bank of England (BoE) is unlikely to raise interest rates due to the UK’s unexpected drop in inflation in June. The BoE raised rates 13 times since December 2021 to counter soaring price rises, which have driven up borrowing costs for millions.

However, the UK’s inflation rate remains almost four times higher than the Bank’s official 2% target, and far above other developed countries. The UK’s food, energy, and services prices have increased since last year, squeezing household incomes.

To address this issue, the Bank has raised interest rates from near zero to their current level of 5%. This raises borrowing costs, which have risen to their highest level in 15 years, leaving millions of homeowners facing higher monthly repayments.

The average two-year fixed residential mortgage rate crept up to 6.81%, while the five-year rate was 6.33%. With inflation falling by more than expected, economists are scaling down their expectations of immediate interest rate rises, but they still believe there are more in the future.