Money latest: Interest rate held again - but we could get hint about timing of cut in next hour (2024)

ByEd Conway, economics and data editor

That's the question exercising members of the Bank of England's Monetary Policy Committee (MPC) at the moment.

All nine members know that interest rates, currently at 5.25%, will have to be cut in the coming months.

After all, high interest rates represent a brake on the economy and it's becoming clear that keeping the brake pedal down is causing economic pain. Unemployment is beginning to rise; the strength of consumer demand is dropping and, most of all, inflation is coming down too.

For Bank insiders the fact that the rate at which the consumer price index is rising each year is about (at least according to their forecasts) to hit 2% is a mark of success.

Not long ago, as prices rose at the fastest rate in decades, many in the City wondered whether the Bank might have lost control of inflation - which it is supposed to keep as close as possible to 2%.

While the indicator's fall is partly down to the volatility of energy prices (having been the main force lifting prices in recent years, they are now the main force depressing them), what gives the Bank's policymakers hope is that while CPI inflation is expected to bounce back slightly in the coming months, their forecast suggest it will not exceed 3%.

The upshot is that inside the Bank there are some who are now whispering quietly that they might have succeeded - inflation might have been tamed.

But that brings us back to that question: if inflation is tamed then there's no need to have interest rates so high, so how soon should they be cut?

Complicating factors is what's happening on the other side of the Atlantic, where the Federal Reserve, America's central bank, has committed something of a U-turn.

Having guided investors and economists a few years ago that an interest rate cut was coming soon, the Federal Chair, Jerome Powell, has more lately hinted that no cut was coming anytime soon.

And since America usually leads the way on interest rates, that raises an unnerving question: can the UK really begin cutting rates so long before the Federal Reserve?

The Bank's internal assessment is quite simply that the British economy is in a very different place to America.

The US is growing very strongly indeed, partly thanks to large Federal spending programmes pumping cash into green tech and semiconductor manufacturing.

There is nothing analogous in the UK, where the economy is expected to grow by 0.9% over the next 12 months or so.

That's an upgrade on the previous 0.6% forecast, but is only a fraction of the 2%+ growth enjoyed in the US.

In the coming weeks, we’re expecting an unusually important set of economic numbers. Inflation data on April is expected to show a big fall, down to 2%.

There are some jobs data and, of course, tomorrow we learn whether the UK has bounced out of its current recession (it almost certainly has).

In the end, this data is what will determine whether the MPC is bold enough to cut rates in June or in August (or, if the data shows an unexpected increase in inflation, to put those cuts off for longer).

So it's a waiting game - but it looks like there's not that much longer to wait.

Business presenter Ian King says the "dynamics are moving towards a cut" - after the Bank's Monetary Policy Committee voting emerged.

Last time 8-1 voted for a hold - this time it was 7-2.

"We are moving ever closer to an interest rate cut," says King.

Deputy governor Sir Dave Ramsden joined Swati Dhingra in voting to cut the rate to 5%.

By Ed Conway, economics and data editor

The Bank of England has edged closer to a cut in interest rates, with another member of its nine-person monetary policy committee voting for lower borrowing costs this month.

While the MPC voted 7-2 to leave UK interest rates on hold at 5.25%, the change in the vote will be seen as a further sign that they could be coming down soon - perhaps as soon as next month.

Alongside its rate decision, the Bank published new forecasts for the UK economy, which show that gross domestic product is projected to be stronger this year and unemployment and inflation rates lower than previously expected.

It said the CPI rate of inflation was likely to drop to its 2% target imminently - though it would bounce a little higher afterwards.

Governor Andrew Bailey said: "We've had encouraging news on inflation and we think it will fall close to our 2% target in the next couple of months. We need to see more evidence that inflation will stay low before we can cut interest rates. I'm optimistic that things are moving in the right direction."

The documents released today are likely to reinforce the view among economists that even though the US central bank, the Federal Reserve, has hinted it won't cut interest rates anytime soon, the Bank is likely to cut them this summer.

The main debate among investors is when that cut will happen: as of this morning they were betting the first quarter percentage point cut would come in August, though some think it could be as soon as next month.

Those who try to construe likely future decisions based on the voting patterns on the committee will see significance in the fact that Dave Ramsden, one of the Bank's deputy governors, has joined Swati Dhingra in voting for lower interest rates.

Often the change in the vote of a senior internal MPC member - as opposed to one of the four external MPC members (of which Ms Dhingra is one) - signifies that the rest of the committee may soon follow suit.

The critical line from the minutes of today's decision reads that the MPC "would consider forthcoming data releases and how these informed the assessment that the risks from inflation persistence were receding".

A few months ago a June interest rate cut was strongly forecast by markets - but that's now slipped back to August, and some economists even believe it could be later.

However, the UK doesn't exist in an economic bubble - and what's happening in Europe could swing a potential cut back to June.

Sweden became the first European economy to cut rates this week - and the European Central Bank is widely expected to rubber stamp a cut on 6 June.

Some analysts think this could persuade the Bank of England - which will almost certainly hold rates at midday today - to quickly follow suit.

Laith Khalaf, head of investment analysis at AJ Bell, thinks a cut from 5.25% will be confirmed in June or August. He explains why rate cuts could be influenced by a pack mentality...

"There's a great deal of speculation as to which of the big three Western central banks is going to blink first and cut interest rates.

"The US Fed has pretty much ruled itself out of the race as policymakers have turned up the volume on their hawkish rhetoric.

"The Bank of England was first into the rate-hiking cycle, but it looks like it's going to be pipped to the post on the way out by the ECB. Markets are expecting a rate cut from the ECB on 6 June, with the UK central bank following suit either in June or August.

"There is some safety in numbers for central banks, because of the exchange rate effects of pulling away from the herd. Cutting rates too far ahead of others can lead to currency weakness, and additional inflationary pressure as a result.

"Leaving it too late can do unnecessary financial damage to the domestic economy."

Those hoping for a rate cut in June - and remember, this would be good for mortgage holders but not savers - may relish the rest of Mr Khalaf's analysis...

"Two important things occur before the UK interest rate decision on 20 June. One is the ECB policy decision in early June, where it is widely expected to cut rates, which would roll the pitch for similar action from the Bank of England.

"The other is more inflation readings for April and May, where CPI could get very close to, or possibly even hit, the Bank's 2% target. The closer the inflation dial gets to 2%, the greater the pressure on the Bank of England to take their foot off the brake and cut rates."

By Sarah Taaffe-Maguire, business reporter

This would have been a different day for the markets if projections from January had come true - we'd be gearing up to see how markets would respond.

Months ago, today was supposed to be the day we'd get an interest rate cut, the first one since the latest round of rises began in December 2021.

But as inflation has remained high - 3.2% in the year up to March - so too have analysts' expectations for when the first cut will come.

The current market forecast is for August, with a second drop in November. It's 50-50 whether we'll get a cut next month.

Movements on the London Stock Exchange are small this morning. The most valuable companies measured via the FTSE 100 index are up 0.07%, while the larger FTSE 250 index grew 0.02%.

A pound buys fewer dollars today than earlier this week. £1 will get you $1.2477 or €1.1626.

Oil prices have risen to $84.29 as the day wore on but still down from the recent highs of $91 a barrel seen in recent weeks.

The Bank of England's monetary policy committeewill announce its latest interest rate decision at midday.

Almost all experts agree that the MPC will hold interest rates at 5.25%.

What's behind the likely hold?

Economists think the Bank's policymakers will want to hold out until they are more convinced that inflationary pressures have eased.

Higher interest rates are used as a tool to control inflation, which has fallen sharply in recent months.

The latest official figures showed that consumer prices index inflation slowed to 3.2% in March, as it edges closer to the Bank's 2% target.

Is inflation the only factor?

Experts have also pointed out that two other key economic indicators for the Bank of England - pay growth and services sector inflation - have remained more stubborn.

Average wages continued to increase faster than the rate of inflation last month.

Policymakers could therefore want to see more progress that the measures are slowing before they are confident cutting rates.

The Bank of England will shed more light on its predictions for the economy and the path of interest rates when it publishes the latest monetary policy report alongside the rates decision today.

What does holding rates mean?

Holding rates means a longer period of higher borrowing costs, which have squeezed households since interest rates started rising at the end of 2021. But it does mean interest rates stay higher for savers.

Every ThursdaySavings Champion founder Anna Bowesgives us an insight into the savings market and how to make the most of your money. Today she's focusing oneasy access accounts...

While the top savings rates available are generally a little lower than they were at the start of the year, it's great to see that so many are still paying an interest rate that is keeping up with inflation.

The reason we have seen rates cooling a little this year is that as inflation has fallen, the Bank of England has signalled that at some point it will cut the base rate - which will see borrowing and savings rates likely fall.

This is why longer-term fixed rates are lower than shorter term - this is called an inverted curve and it indicates that interest rates will be falling over the next few months and years.

So, although any money locked away now for perhaps five years may initially be earning less interest, over the full term you could find you have hedged against some of the interest rate cuts and therefore end up earning more overall - that way, at least some of your cash is keeping up with, or even beating the cost of living, for longer.

Variable rates, such as easy access and notice accounts, tend to be more reactive at the time that the base rate changes, although even the top rates on the latest accounts have been falling slightly.

That said, although variable, those who have opened earlier higher paying easy access and notice accounts over the last few months may not have seen rate cuts yet, so could still be earning market beating interest.

But when the base rate is cut, we are likely to see rates on old accounts fall as well as new.

This is why it's important to keep a close eye on the rates you are earning and where possible, switch if you can find something more competitive.

A boss at Waitrose has declared the end of the "cheap food era".

James Bailey, an executive director at the supermarket, said the disappearance of cheaper food was down to the impact climate change was having on people's health, the environment and society.

Agriculture is responsible for around 20% of greenhouse gas emissions and is the biggest driver of biodiversity loss.

It relies heavily on the use of chemical fertilisers and intensive methods, plus relatively reliable weather.

Mr Bailey warned in an interview with The Telegraph that the price of these methods was increasing, meaning people would soon be paying more for UK-grown produce.

"If food production becomes much less stable, you're going to see prices going up anyway, but for the wrong reasons," he said.

"There will be tipping points where if you want tomatoes or lettuces in certain seasons, they're going to cost more, even coming from the UK. Because the farmers who produce them are now dealing with energy costs up to here, or the uncertainty of flooding, or risks that didn't exist five to 10 years ago."

Climate change, he said, would impact "the quality of the food, the availability of the food, and the price of the food".

Mr Bailey predicted the solution was regenerative farming - a type of farming that avoids ploughing, reduces fertiliser use and uses cover crops during the winter months to protect the soil.

He believes in the method so much that he says Waitrose is aiming to make all of its UK supply chains from regenerative farms by 2035.

It is still unclear whether regenerative farming practices mean more expensive food. But Mr Bailey said Waitrose customers - who typically have the time and money to choose more expensive products - would be the guinea pigs.

"Part of the solution might be if customers understand regenerative and are prepared to pay for that difference - a bit like organic food," he said.

"I'm very keen to stress that we don’t have all the answers, but eventually regenerative farming should be as profitable, or more, than intensive farming."

By James Sillars, business reporter

The big economic question dominating this year has been this: when is the Bank of England going to cut rates?

At the risk of losing you, at this early stage, the answer is not at 12pm today.

However, there are several things we should watch out for to give us clues on the timing.

Before we get down to those, there are a few elements of background to take in to aid understanding of the shifting sands being witnessed by the Bank.

Andrew Bailey, the governor, has hailed "strong progress" in the battle against inflation but remained adamant, ahead of this meeting of the rate-setting committee, that there were still some hurdles to clear.

They include wage growth - which is running at almost double the pace of price growth in percentage terms.

In the Bank's eyes, there is a risk that consumer spending sprees could force up prices and add to inflation.

Proving stubborn to bring down too is an element of inflation that reflects the cost of providing services in the economy as opposed to goods.

As worries over inflationary pressures have evolved, doubts have crept in over the timing of a rate cut.

Those have been reflected in the costs of average fixed rate mortgages, which have been creeping back up as financial market expectations for the first rate cut shift.

The good news is that everyone still expects the next movement to be down from the 5.25% level Bank rate reached last summer.

After all, the main rate of inflation is tipped by economists to have eased back to just above the Bank's 2% target during April due to falling energy costs and a further slowing in the pace of food price rises.

The four things to look out for:

The voting

Last time out, in March, the Bank's monetary policy committee (MPC) voted 8-1 to keep Bank rate on hold.

There was a lone voice for a cut from Swati Dhingra. There is a chance that at least one other member joins her in banging the drum for lower borrowing costs.

Language in the meeting minutes

There is a chance that the Bank will signal that financial markets are expecting too few cuts on the horizon.

Look out for any language to support that.

While there are bets on June, the bulk of the money is on August for the first cut, but with two fewer cuts up until the end of 2025 than had been expected at the time of the February MPC meeting.

Monetary policy report forecasts

Today's interest rate decision is accompanied by the minutes of the meeting but also the latest quarterly monetary policy report.

It's exciting (yes, really) because it contains the latest forecasts from the Bank's staff that will show its latest thinking on the path for things like employment, economic growth and inflation.

Any sign that the previously expected rise in inflation during the second half of this year will be shallower than expected gives more ammunition to those arguing for a rate cut.

The governor

Andrew Bailey gives interviews after the conclusion of the jargon-filled news conference.

He tries to make the message as plain as possible and can be the clearest sign of the policy path.

Planning on booking a last-minute break? Research has revealed the best value popular holiday destinations in Europe.

Frequent flyer experts Flight Hacks looked at factors including average flight prices from London airports, food costs and hotel costs per night to determine which destinations offer great value.

1. The Romanian capital, Bucharest, came out on top for value - with an average cost per day of £215.52.

It has the cheapest average hotel prices of all European destinations at £86.72 a night.

Plus, you'll also be able to head to Europe's biggest thermal spa for less than £20 a day...

2. Krakow, Poland, is second on the list with an average daily cost of £216.45.

It is one of the cheapest places in Europe to eat, costing £7.90 on average for a meal for one at an inexpensive restaurant.

Among the must-see attractions are the Wieliczka salt mine (which has a salt lake where the water is denser than the Dead Sea), Wawel Royal Castle and Schindler's Factory.

3. Third-best value is Seville inSpain, which has an average daily cost of £219.05.

A three-course meal for two at a mid-range restaurant should only set you back about £37.68 - making it an ideal destination for foodies.

The Andalusian capital is known for its flamenco clubs, orange-tree-filled plazas and its royal palace complex, the Real Alcazar.

4. Next up is Prague, Czech Republic, with an average daily cost of £219.86.

It has both the cheapest average flight price and the lowest average domestic beer price of all destinations in the top 10, at £76.61 and £1.87 respectively.

The most popular attraction is Prague Castle, which looms over the city.

5.Warsaw, Poland, ranks fifth with an average daily cost of £220.70.

It actually has cheaper hotel prices than in Krakow, averaging at £90.36.

Warsaw is Krakow's bigger and more sophisticated cousin, and its gorgeous Old Town is a UNESCO world heritage site.

6. Next is Istanbul, Turkey, with an average cost per day of £234.80.

It ranks first out of all European destinations for domestic travel costs, with the average taxi journey (per 1km travelled) and average price of public transport (one-way) both costing only 44p.

That's despite Turkish inflation standing at 69.8%.

Here's a quick look at what you'll find in Istanbul...

7.Riga, Latvia, with an average daily cost of £242.16.

If you're one of those people who like to try a McDonald's in each country you travel to, it's one of the cheapest places to do so at only £6.21.

It's known for its hip bars, modern art centres and cool experimental restaurants.

8. Next is Frankfurt, Germany, which has an average daily cost of £250.37.

It has the lowest average combined price for flights and hotels out of all European destinations, at only £169.64.

The city might not be Germany's most popular tourist destination - instead it's known as a financial capital - but it has a vibrant arts and culture scene, green spaces and an increasing number of bars and nightclubs.

9. Ninth is Porto, Portugal, with an average daily cost of £256.88.

For coffee lovers, it's the cheapest place in the top 10 to purchase a cappuccino at only £1.35.

It's also known for its hilltop viewpoints, medieval monuments, UNESCO-listed historic centre and, of course, its food scene.

10. The final destination in the top 10 is Valencia, Spain, with an average daily cost of £262.34.

Like Seville, it is a good value option for dining out as an average three-course meal for two costs about £38.53.

It's the home of rice dishes such as paella and has thriving cultural, food and nightlife scenes.