Bank of England expected to cut interest rates

The Bank of England is expected to announce an interest rate cut later today, a move being closely watched by households and economists alike. Analysts predict that the benchmark interest rate will be lowered from 4.75% to 4.5%, as the Bank of England faces pressure to boost the UK economy, which is currently experiencing a slowdown in growth. This decision is crucial for both consumer spending and overall market stability.

Bank interest rates are a primary tool for controlling inflation. Hopes for an interest rate cut have increased after inflation, a measure of the rising cost of living, fell to 2.5% in the year to December. However, that inflation rate is still above the Bank of England's 2% target, and changes to the budget are expected to push inflation higher. Managing inflation effectively is key to ensuring long-term economic health.

Economic uncertainty has been heightened by US President Donald Trump's introduction or threat of import tariffs. These tariffs could lead to global inflationary pressures, which in turn could have a knock-on effect on price rises in the UK. The Bank of England controls inflation by raising or lowering interest rates, with higher rates making borrowing more expensive, thereby reducing people's disposable income and encouraging saving. In turn, this reduces demand for goods and slows the rate at which prices rise. But it's a balancing act, as higher borrowing costs can damage the economy because it discourages business investment and the creation of more jobs.

Once price rises are better under control, the Bank of England will consider lowering interest rates. Its base rate has a significant impact on the interest rates that commercial banks and other lenders charge customers for loans, credit cards and other financing deals, most notably in mortgage costs. Lowering the base rate will have an immediate impact on those with "tracker" mortgages. Around 629,000 mortgage holders are on tracker deals, and their monthly repayments will typically fall by about £29, due to the expected 0.25 percentage point cut later today. A similar number of households have variable rate deals, and lenders will be under pressure to cut their rates if the Bank of England lowers the base rate. Fixed-rate deals won't change immediately, but expectations of further rate cuts could see new or renewing borrowers get better deals.

Savers will be affected by a fall in the base rate, as the returns they get from banks are also likely to be cut. The Bank of England's Governor, Andrew Bailey, said when interest rates were held at 4.75% in December that there would be "a series of future steps of reducing interest rates". But he added: "We can't promise when or by how much." In the minutes of its last meeting, the Bank of England said "there was uncertainty about how the measures announced in the Autumn Budget would affect growth". After the November meeting, Mr. Bailey declined to comment on the impact of Trump's tariffs on the UK economy, saying "let's wait and see". In the US, the central bank - the Federal Reserve - has said it will cut interest rates at a slower pace this year.

Economist Paul Dales told the BBC that "cutting UK interest rates would be a 'balancing act between supporting an economy that seems to have ground to a complete halt and preventing inflation from picking up again'". He also added that "Trump's tariffs are unlikely to have too much of an impact on UK interest rates", but that wages rising faster than the Bank of England forecasts might influence its decision. The UK economy grew by less than expected in November, after no growth in the previous two months. With businesses bracing themselves for rising costs in April, due to budget changes such as increased national insurance contributions and a higher minimum wage, the economy is expected to slow further.

Financial markets have been volatile in recent times ahead of the release of economic data, leading to the government's borrowing costs reaching their highest level for many years, and a fall in the value of the pound. The Bank of England will announce its interest rate decision at 12:00, at the same time as it shares a report about where it thinks inflation is heading in the coming months, and likely hint at its strategy for responding.