The Bank of England is widely expected to hold the central interest rate at 4% this month as the country’s inflation woes persist. The Consumer Price Index (CPI) rose by 3.8% in the 12 months to August, unchanged from July. Rates are only expected to increase as more of Labour’s policies filter down to pockets.
Most economists had expected inflation to remain at this level; however, it is still nearly double the Bank of England’s 2% target. The Bank reviews the Base Rate, which influences mortgages, loans, and savings rates, regularly to help temper inflation. The Bank typically raises or holds the Rate when inflation is high to curb spending and slow price increases, and lowers it when inflation drops. Suren Thiru, economics director at the Institute for Chartered Accountants in England and Wales (ICAEW), said: “This data confirms no respite yet for those households and businesses struggling with eyewatering financial pressures, as rising fuel costs helped keep inflation dishearteningly above the Bank of England’s 2% target.”
Mr Thiru continued: “August’s unchanged outturn could be followed by an unnerving upswing this month, with skyrocketing business costs and food prices likely to see inflation breach the 4% mark in September, despite a weakening economy.”
He noted that slowing services and core inflation offer a “rare silver lining”, as it suggests that underlying price pressures are becoming “less sticky”. He added: “The squeeze from a cooling jobs market should help keep it on a downward path.”
Core inflation monitors the change in prices of goods and services, excluding those from the food and energy sectors. The Bank of England uses this to help determine the impact of rising prices on consumer income.
Nonetheless, Mr Thiru said: “These figures are the final nail in the coffin for hopes of a rate cut tomorrow, and with the vote split among rate setters likely to confirm a hawkish hold, another policy loosening this year looks remote.”
While the data may dampen hopes for more mortgage rate cuts, some brokers have said it provides “a degree of stability for borrowers and lenders”.
Joseph Lane, founder and director of brokerage experts Mortgage Lane, said: “Whilst many will have hoped for another reduction to be announced on Thursday, the Bank of England’s prediction decision to hold at 4% provides a degree of stability for borrowers and lenders alike.
“For homeowners and first-time buyers, this could mean a more predictable mortgage market over the coming months, with lenders likely to maintain competitive fixed and tracker products.”
For buy-to-let landlords, Mr Lane said the steady base rate offers “breathing space” after years of volatility.
He said: “Margins have been under strain from higher borrowing costs and tighter regulation, but a stable rate should allow landlords to plan with greater confidence, whether that’s refinancing existing deals or exploring expansion.”
He continued: “While a base rate hold won’t transform affordability overnight, it offers the consistency that the market has been craving. Those who take a strategic, well-advised approach will be best placed to thrive.”
Charlie Ambler, co-chief investment officer and partner at wealth management firm Saltus said: “All signs point towards a hold in the base rate this week, and previous expectations of one or two further interest rate cuts this year now look unlikely. Despite this, Thursday’s decision could be an opportunity to reassure the markets that the Bank will not deviate from its long-term plan.
“Ahead of November’s Budget, where the Chancellor is expected to announce further tax hikes, the Bank has an opportunity to provide certainty for investors in the interim. However, with inflation unlikely to return to the 2% target until the second quarter of 2027, any forward guidance will likely remain cautious.”
He added: “For investors, a single meeting should not drive strategy. Stay diversified, manage cash and gilt exposure carefully, and make full use of tax allowances ahead of the Autumn Budget.”
The Bank of England’s Monetary Policy Committee (MPC) will announce the Base Rate decision on Thursday, September 18 at 12pm.
