The Bank of England has signaled that interest rate cuts could be on the horizon as inflation in the United Kingdom continues to ease toward the central bank’s 2% target.

Key Developments

According to the latest data from the Office for National Statistics, UK inflation fell to 3.4% in February, down from 4% in January. This marks the lowest level since September 2021 and brings the country closer to the Bank of England’s target rate.

Governor Andrew Bailey indicated that the Monetary Policy Committee is closely monitoring economic conditions and could begin easing monetary policy in the coming months if inflation continues its downward trajectory.

Market Reaction

Financial markets in London responded positively to the news, with the FTSE 100 gaining 0.8% in early trading. The pound sterling remained stable against the dollar, trading at approximately $1.27.

What This Means for Consumers

For British households, a potential rate cut could bring relief to mortgage holders who have faced higher borrowing costs over the past two years. The average two-year fixed mortgage rate currently stands at around 5.5%, significantly higher than the sub-2% rates seen before the Bank began its tightening cycle.

Economists at major UK banks, including Barclays and HSBC, expect the first rate cut to come in June or August 2024, with further reductions likely through the remainder of the year.

Looking Ahead

The Bank of England’s next monetary policy decision is scheduled for March 21st, when the committee will review the latest economic data and provide updated guidance on the path of interest rates.

Source: Reuters | Read original