Refresh
Good afternoon and welcome to our live coverage ahead of the Bank of England’s Monetary Policy Committee announcing its latest base rate decision tomorrow (30 April).
What is the current bank rate?
It said it would continue to monitor the situation in the Middle East “closely” and its impact on wholesale energy costs.
When does the MPC meet to decide UK interest rates?
The Monetary Policy Committee meets today, Wednesday 29 April, but the decision made by the committee’s nine members won’t be released until tomorrow at midday.
Keep with us as we’ll announce the committee’s decision as soon as it’s confirmed at 12pm.
Why the MPC might hold UK interest rates
Given the degree of uncertainty over the eventual fallout from the conflict in Iran, and the UK’s precarious economy, some experts think that the MPC will once again err on the side of caution and hold UK interest rates unchanged.
“We expect the MPC to lean heavily into the uncertainty angle on Thursday,” said Matthew Ryan, head of market strategy at financial services firm Ebury. “In our view, it remains too soon for the bank to both assess the effect of the energy price spike on second round inflation, and have a clear timeline for when oil traffic will resume through the Strait of Hormuz.”
Holding UK interest rates unchanged would have the added benefit of signalling to markets that the MPC is willing to move UK interest rates in either direction, depending on how events unfold.
“[Bank of England governor Andrew] Bailey could again gently push back against market pricing for hikes, but we do not expect the statement to rule anything out,” Ryan added.
Who are the nine members of the Monetary Policy Committee?
A representative from HM Treasury also sits with the MPC at its meetings and can discuss policy issues, but is not allowed to vote.
These are the current nine members of the MPC:
Andrew Bailey – governorSarah Breeden – deputy governor, financial stabilityClare Lombardelli – deputy governor, monetary policyHuw Pill – chief economist and executive director, monetary analysisSir Dave Ramsden – deputy governor, markets and bankingDr Swati Dhingra – external memberMegan Greene – external memberProfessor Alan Taylor – external memberCatherine L Mann – external member
Where have interest rates been since 2008?
Three major factors caused inflation to surge in 2022, according to the Bank of England: countries emerging from coronavirus lockdowns which released pent up demand for products and services, Russia’s invasion of Ukraine, which saw energy and food prices soar, and a shortage of workers in the UK post-Covid which raised the cost of hiring (some businesses put their prices up to cover these costs).
In response, the Monetary Policy Committee voted for a number of interest rate hikes in 2022 and 2023, with bank rate hitting 5.25% at its peak.
Inflation has since slowed, meaning the committee has been able to steadily lower interest rates to 3.75%.
However, the inflationary effect of the conflict in Iran and the Middle East has dented hopes rates could fall again in 2026.
What do you think the Monetary Policy Committee’s decision will be?
It’s time for you to have your say. Do you think interest rates will be lowered, held or raised tomorrow?
Where is inflation forecast to go in 2026?
The International Monetary Fund (IMF) is also expecting inflation in the UK to rise to 4% in 2026.
The Food and Drink Federation, the UK trade body for food and drink manufacturers, has said food inflation could hit as high as 9% by the end of the year.
How does base rate affect inflation?
They also see savers getting bigger returns on their savings which can incentivise people not to spend money and stash it away instead.
When people spend less, businesses are generally less willing or able to raise their prices, which keeps inflation lower.
Lower interest rates can have the opposite effect, making it cheaper to borrow money and take out a loan or mortgage.
Savers also get a smaller return on their savings so may feel it is more worthwhile to spend their money rather than save it. All of this can stimulate consumer spending and push up inflation.
The government sets the Bank of England a 2% target for inflation because low-level inflation is generally seen as more positive than deflation, where prices fall.
Energy prices forecast to rise in July – why the Bank of England is so concerned about inflation
A focal point of the conflict in the Middle East has been the Strait of Hormuz, through which around 20% of global petrol and 20% of the world’s gas goes through each year.
The strait has effectively been blocked since the start of the conflict, which has pushed up wholesale prices.
This is expected to feed into energy prices from July, when the new price cap comes into effect. Ofgem will announce what the cap is on 27 May.
However, forecasts from consultancy Cornwall Insights, which is well-regarded for its price cap predictions, say the July price cap will rise to £1,836 per year – an increase of more than 12% from the current cap.
It is a major contrast to where the consultancy expected energy prices to go before the conflict began, when it forecasted them to rise modestly to an average of £1,645 a year, broadly the same as the current price cap.
Goodbye for now
We’re going to end our live reporting for today and we’ll be back tomorrow first thing to bring you more reaction and analysis.
Make sure you keep an eye on the MoneyWeek website for all the latest investment and personal finance news.
Welcome back
Good morning and welcome back to our live coverage ahead of the Bank of England’s Monetary Policy Committee’s (MPC) bank rate decision today.
The MPC’s decision will be confirmed at 12pm, so stay with us for rolling analysis and commentary following the announcement.
A quick recap
If you’ve not been with us since our coverage started yesterday, here’s what you’ve missed.
Economists and experts mostly believe rates will be held as policymakers take a wait and see approach.
Sanjay Raja, chief UK economist at Deutsche Bank, said: “We don’t expect any change to bank rate in the April meeting (3.75%). Instead, we see the upcoming meeting as a ‘risk posturing’ event – with the Bank (of England) laying bare the risks to the economic outlook as a result of the energy shock.”
Quiz question: What is the current rate of inflation?
It’s time to test your knowledge and see how much you’ve been paying attention to the latest macroeconomic news.
What has Andrew Bailey said about interest rates?
Speaking at a meeting of the International Monetary Fund (IMF) earlier this month, Bailey said the MPC would not “rush to judgements” on rates because the impact of higher energy prices could cause inflation to spike but also stunt economic growth, the BBC reported.
“There are a lot of uncertainties around this, not just how it’s going to play out, but also how it’s going to pass through into the UK economy,” he said.
Oil prices hit four-year high
The US has been blockading Iran’s ports in a bid to squeeze its economy and prevent oil exports.
Following the reports, the price of a barrel of Brent Crude oil shot up to $126 overnight, its highest level since March 2022, shortly after Russia invaded Ukraine which sent energy prices soaring. Since last night, the price of a barrel of Crude Oil has fallen to $116.
Susannah Streeter, chief investment strategist at investment platform Wealth Club, said the surge in oil prices was unlikely to have an effect on any interest rate announcements from the Bank of England today.
She said: “For now, a wait-and-see stance is expected to be adopted, with the Bank of England looking set to keep rates on hold, and the European Central Bank poised to take the same action.
“But inflation is already ramping higher, as higher forecourt prices show up in the data. But they will want to see signs that inflation is becoming embedded in the economy, through higher consumer prices, and sticky wage growth before they make a move on rates.”
Interest rate announcement just minutes away
The Monetary Policy Committee’s announcement on interest rates is just minutes away. Stick with us and we’ll bring you the decision as it’s confirmed.
BREAKING: BANK OF ENGLAND HOLDS INTEREST RATES AT 3.75%
Decision from the Bank of England expected
The announcement from the Bank of England’s Monetary Policy Committee confirms what experts and economists had been predicting – that interest rates would be held.
If inflation continues to rise, it could force the committee to increase interest rates.
Monetary Policy Committee votes to hold rates by 8-1
The committee’s chief economist and executive director, Huw Pill, was the one person who voted to raise rates, to 4%.
All other members, including the governor Andrew Bailey, voted to hold rates at 3.75%.
‘Brace for bumps ahead’
Kalpana Fitzpatrick
Digital editor-in-chief at MoneyWeek
Regardless of today’s announcement, the road ahead for the Bank of England as well as consumers looks tricky.
Inflation is expected to rise further, which will make the cost of living more expensive for households, and higher interest rates to combat inflation would make borrowing and mortgages more costly.
Kalpana Fitzpatrick, digital editor-in-chief at MoneyWeek, said any future rate hikes would pile further pressure on households.
“The economic uncertainty and the cost of living deepening for households, means a rate hike now may not sit well,” she said.
“But, with oil prices hitting fresh highs, April’s inflation figures released next month could well be the trigger for a June increase. For households, now is the time to prepare; for example, if a mortgage deal is coming to an end, it could be worth reviewing it sooner than later. Brace for bumps ahead.”
What does the Monetary Policy Committee’s report say?
It states that the conflict in the Middle East means that “prospects for global energy prices are highly uncertain”.
It adds: “Monetary policy cannot influence energy prices but will be set to ensure that the economic adjustment to them occurs in a way that achieves the 2% inflation target sustainably. The policy stance required to achieve this will depend on the scale and duration of the shock, and how it propagates through the economy.”
What does the interest rate decision mean for your mortgage and savings account?
Those on fixed-rate mortgages are less affected by immediate changes in the base rate as the interest rate you agree on your mortgage stays the same for the duration of its term.
Why Huw Pill voted to raise interest rates
As we’ve reported below, just one member of the Monetary Policy Committee voted to raise interest rates today – Huw Pill, chief economist and executive director.
His justification for a hike was that the effects of higher energy prices had the potential to create second-round effects which could “raise UK inflation beyond the near term in a persistent manner”.
Second-round inflationary effects occur when workers start asking for pay rises so their incomes keep up with inflation and firms raise prices to protect profits.
Worse-case scenario could see inflation could hit 6.2% in 2027
The Monetary Policy Committee’s report, published alongside its interest rate decision, says inflation could hit a peak of 6.2% at the start of 2027.
This, the report says, could lead to interest rates rising as high as 5.25% by the start of next year.
However, it’s worth noting this is a worse-case scenario, based on energy prices rising sharply and remaining elevated for a “prolonged period”.
In Scenario A, inflation would rise to 3.6% at the end of 2026, while under Scenario B, it would hit 3.7% by the end of this year.
Interest rates ‘another headache for the chancellor’
Lucy Smith, senior investment manager at wealth manager Killik & Co, said: “A high base rate, political instability in No.10 and a weak economic outlook will all contribute to driving gilt yields up. In real terms, this means the government will have to pay a premium on new debt, weakening its fiscal outlook.”
When will the next interest rate decision be announced?
The Bank of England’s Monetary Policy Committee will next meet in around six weeks’ time, with an announcement on interest rates scheduled for 18 June.
Thanks for following
We’re going to end our coverage for today. Thanks for following and make sure you check out Moneyweek.com for all the latest personal finance and investment news.