Bank of England base rate remains at 5¼%

Base rate has remained at 5.25%

The Bank of England base rate remains at 5¼%. Inflation has fallen from a peak of 11% in 2022 to 6.7% in September 2023 with the Bank expecting inflation to fall further this year and continue to fall towards their 2% target next year. That means prices will be rising more slowly than they have been.

Higher interest rates make it more expensive for people to borrow money and encourages them to save. The Bank feels that overall, people will tend to spend less and if people on the whole spend less on goods and services, prices will tend to rise more slowly, which in turn lowers the rate of inflation. The Bank expects inflation to fall further this year to around 4.5%, and continue to fall next year.

The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 1 November 2023, the MPC voted by a majority of 6–3 to maintain Bank Rate at 5.25% with three members preferring to increase the Bank Rate by 0.25 percentage points, to 5.5%.

The Committee’s updated projections for activity and inflation are set out in the November Monetary Policy Report. These are conditioned on a market-implied path for Bank Rate that remains around 5¼% until 2024 Q3 and then declines gradually to 4¼% by the end of 2026, which is a lower profile than underpinned the MPCs August projections.

What does this all mean

The current Bank of England interest rate of 5¼% will remain pretty consistent for most of next year and if everything remains on track by the end of 2026 we may be seeing interest rates around the 4¼%, which is 3 years away. In essence, interest rates shouldn’t go up any further unless we have a spike in inflation.

For borrowers, it does provide stability albeit the days of hyper-low interest rates are unlikely to be seen for some time and may not return. It looks unlikely that we will see the interest rates of the late 1980’s and early 90’s when the Bank of England base rate was in double digits.

Source: Bank of England Monetary Policy Report 02 November 2023
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