England (Parliament Politic Magazine) – he Bank of England predicts zero growth in the UK economy until 2025. This announcement coincided with the Bank’s decision to maintain interest rates at 5.25% for the second consecutive time, marking the highest level in 15 years. Chancellor Rishi Sunak’s commitment to stimulate economic growth by the year’s end faces uncertainty due to the Bank’s downgraded growth projections.
Consideration For The Rare Cuts Seems Premature
Notwithstanding the subdued economic outlook, Bank Governor Andrew Bailey emphasized that any consideration of rate cuts was “premature.” However, the Bank anticipates a sharp decline in inflation in the coming months, aligning with the Prime Minister’s goal to reduce inflation to around 5% by year-end.
Prior to September, the Bank of England had raised interest rates 14 consecutive times in a bid to curb surging inflation, which had been putting pressure on household budgets. This effort had led to increased mortgage payments, impacting borrowers while also offering higher savings rates to savers.
We will maintain high interest rates for an extended period to ensure that we bring inflation back to our 2% target,” stated Mr. Bailey. He added, “We will closely monitor the need for further rate increases.”
Bank Of England Expects A Decline In Inflation
The most recent inflation rate, as of September, stood at 6.7%. The Bank anticipates a gradual decline in inflation as the pressure from energy and food price increases eases, but it is expected to remain around 3% throughout the next year, which is above the 2% target.
Mr. Bailey also acknowledged the potential risk of the Israel-Hamas conflict spreading across the Middle East, which could impact energy prices. However, he noted that, so far, the conflict has not significantly affected energy prices.
While the Bank is not predicting a recession, it does anticipate zero growth in the UK economy from the present time, through the entirety of the next year (which includes a likely general election) and into 2025. The Bank characterized the outlook for UK economic growth as “subdued,” but Mr. Bailey pointed out that similar economic situations can be observed in other countries, with some even in recession.
The Autumn Statement will detail our strategy to enhance economic growth by stimulating private investment, increasing employment opportunities for British citizens, and improving the efficiency of government services.”
In response, the Labour Party criticized it as “13 years of economic mismanagement that have adversely affected the well-being of the workforce,” and the Liberal Democrats referred to the decision on interest rates as “of little solace to the millions of diligent families.
Mortgage Rates Rise In The UK
Mortgage rates have surged due to the Bank of England’s recent interest rate hikes, affecting first-time buyers, individuals refinancing, and those with variable or tracker mortgage deals. This has caused a lot of concerns for people looking to buy a new home.
In the United Kingdom, the average five-year fixed-rate residential mortgage now stands at 5.87%, slightly lower than earlier this year but considerably higher than in previous years.
Ebony Cropper, from Warrington, and her fiancé are diligently saving for a deposit to purchase their first home. However, their task has become more challenging as their monthly rent increased by an additional £45 in August.
“We got engaged this year, but we’ve decided to delay the wedding because it’s a significant expense for just one day, and owning a house is a higher priority,” Ebony shared with the BBC. “At the moment, it feels somewhat futile because our goal of homeownership seems to be slipping further away.
While interest rates are presently unchanged, Dr. Anna Valero, a fellow at the London School of Economics and a member of the chancellor’s economic advisory council, cautioned that there will be continued repercussions from the earlier rate hikes.
“Due to the way monetary policy affects the economy, there is a delay,” she explained. “As a result of the prior rate increases, their impact still needs to be experienced—by individuals renewing mortgages next year, businesses facing increased borrowing costs, and all the subsequent implications.