Inflation falling to a two-and-a-half year low “opens the door” to the Bank of England cutting interest rates, the Chancellor has claimed.
Jeremy Hunt has suggested the central bank could “consider bringing down” the country’s base rate with the Bank’s Monetary Policy Committee (MPC) next meeting tomorrow.
Earlier today, the Consumer Price Index (CPI) rate of inflation for the 12 months to February 2024 eased to 3.4 per cent, from four per cent.
This represents the lowest level of inflation reported since September 2021 and suggest the Bank of England’s efforts to mitigate the impact of inflation on economy are having effect.
Speaking to reporters, Mr Hunt praised the Government’s track record when it comes bringing the CPI rate down.
Mr Hunt told broadcasters: “What I’m really saying is that as inflation gets closer to its target, that opens the door for the Bank of England to consider bringing down interest rates, that brings down mortgage rates, that makes a very big difference.
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Mr Hunt said today's inflation figures "open the door" to an interest rate cut
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“It’s far too early to know whether we’ll have another fiscal event before the election, but what I would say is that what you can see is the difficult decisions the Government has taken over the last year are paying off and we can see that – difficult though they were – they were the right thing to do because inflation is now coming right down.”
In the last two years, the Bank of England, which is independent of the Government has raised interest rates to help bring CPI inflation in the UK down.
The central bank’s base rate has been held at 5.25 per cent since August 2023.
While savers have benefited from hiked rates, those with debt and mortgage repayments have been forced to pay more as a result.
The Bank’s target rate of inflation is two per cent.
With the CPI rate inching closer to that goal, many analysts are betting on the Bank of England cutting interest rates in the near future.
According to the EY ITEM Club, inflation could fall below two per cent by as soon as next month.
Despite this, economists have warned that the Bank of England’s MPC will “likely keep the base rate steady” at its meeting tomorrow.
Jake Finney, an economist at PwC UK, explained: “Despite today’s progress on headline inflation, we still expect rates to be held constant when the Monetary Policy Committee meets again this Thursday.
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The Bank of England base rate is at a 15-year high of 5.25 per cent GB NEWS“The Bank of England will want to see more conclusive evidence that we have achieved a sustainable return to the inflation target before they loosen monetary policy”.
Jonathan Bone, a mortgage lead at http://Better.co.uk , added: “The news of decreasing inflation will bring a sigh of relief for first-time homebuyers who have been grappling with sky-high mortgage rates, making owning a home feel like a distant dream.
“This news means the Bank of England will likely keep the base rate steady at 5.25 per cent.”
The Bank of England’s MPC will announce any changes to the UK’s base rate tomorrow, March 21.
