Interest rates: how will Bank of England 5.25% UK rate announcement affect mortgages - when is next decision?

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  • UK interest rates expected to remain unchanged at 5.25% despite inflation reaching 2% target
  • Policymakers expected to delay rate cuts until confident inflation is under control
  • They are also likely to wait until after the election to assess economic impact of the outcome
  • Sunak's optimism about economic turnaround contrasts with cautious Bank of England
  • Variable-rate mortgage holders face stable payments; consumer borrowing costs likely to stay high

Borrowers seeking relief from high costs may be disappointed, with UK interest rates not being cut on Thursday (20 June), despite inflation returning to target.

Policymakers have maintained UK interest rates at 5.25% with the Bank of England’s latest announcement.

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Earlier this week (19 June), it was reported that inflation returned to the 2% target in May, for the first time since July 2021.

It raised questions over whether interest rates, which are used by the central bank as a tool to control inflation, could now be eased after more than six months at 5.25%.

But experts cautioned that a rate cut this summer could be less likely until the majority of the Bank’s Monetary Policy Committee (MPC) feel certain that inflation is under control.

So why exactly aren’t interest rates going down in line with inflation, when will they finally see a cut, and what does it mean for the average British household? Here is everything you need to know.

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Why are interest rates not being cut?

(Photo: Dan Kitwood/Getty Images)(Photo: Dan Kitwood/Getty Images)
(Photo: Dan Kitwood/Getty Images) | Getty Images

Rishi Sunak declared “we’ve got there” after this week’s inflation milestone was confirmed, insisting that it shows the economy has “turned the corner” after a long stretch of above-target inflation. So why are interest rates not following suit?

Experts have warned that a rate cut this summer is unlikely until most members of the MPC are confident that inflation is under control.

Responding to the drop in inflation, Jake Finney, economist at PwC, warned it is “not ‘job done’ yet”.

He said: “If prices continue to rise at the same month-on-month rate as they did this month (0.3%), then headline inflation will be back over the 2% target next month (at 2.1%).”

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Interest rates are also unlikely to be dropped due to the rate of services inflation, which looks only at service-related categories like hospitality and culture, and is a key gauge for policymakers, remaining more stubborn than expected.

When will interest rates be cut?

Experts have also pointed out that the July rate decision is happening two weeks before the UK holds a General Election, which could prompt the Bank to exercise caution, with policymakers not expected to make any speeches or statements during the campaign.

Laura Suter, director of personal finance at AJ Bell, said: “It’s highly likely the Bank will want to wait to see the outcome of the election and the final economic plans before making that first cut.

“With no meeting in July, that means all eyes are now firmly on the August MPC meeting for our first potential cut to rates.”

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But financial markets have actually reduced bets of a rate cut happening in August, with some economists suggesting it could come as late as September.

What does it mean for me?

With interest rates sticking at 5.25%, there are several implications for the average British household.

Loans, mortgages and credit card interest rates will likely stay where they are, marking no change in the costs of households borrowing money. This can affect decisions on purchasing homes, cars and other large items.

Homeowners with variable-rate mortgages are also likely to see no drop in their monthly mortgage payments.

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With prices staying relatively high, this can lead to reduced consumer spending as people prioritise paying off debts or are deterred from taking on new loans.

What are your thoughts on the implications of unchanged interest rates? Join the conversation and share your insights and concerns in the comments section.

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