Interest rates are expected to be held steady by policymakers at the Bank of England (BoE) as they keep a sharp eye on unfolding events in the Middle East. The Monetary Policy Committee (MPC) is widely predicted to maintain the benchmark rate at 3.75% for the fourth consecutive meeting. Interest rates serve as the main instrument for controlling inflation, which, simply put, is the rate at which prices climb. The inflation rate in the UK remains above the target but hasn’t escalated as high as many had feared, despite the global economic disruptions triggered by the ongoing US-Israel conflict involving Iran.
Official figures released on Wednesday revealed that inflation held steady at 2.8% for the year leading up to May, as food price increases slowed to a 17-month low. Over the same period, transport costs surged at the fastest rate, according to the Office for National Statistics (ONS). Meanwhile, the price hikes in meat, dairy, and vegetables showed signs of easing. This figure, which fell below expectations, has solidified beliefs among analysts that the MPC will refrain from raising interest rates during their next announcement scheduled for 12:00 BST on Thursday.
At their last gathering in April, the MPC hinted that interest rates might rise later this year, attempting to tackle inflation in the wake of a “significant energy price shock” due to the Iran conflict. However, the recent promise of a peace deal between the US and Iran has alleviated some of those concerns. US President Donald Trump announced that a peace agreement with Iran was signed on Wednesday, which is expected to facilitate the reopening of the vital Strait of Hormuz. Oil prices have plummeted to near their lowest levels since the conflict erupted, as traders anticipate a return to free shipping through this crucial waterway that typically carries about one-fifth of the world’s oil and gas supplies.
Analysts suggest that this deal could decelerate the rise in energy and fuel prices, making the worst-case scenarios for inflation seem less likely. But wait; there’s more. Experts still anticipate that price increases will gain momentum in the UK, particularly due to the delayed effects of higher wholesale energy prices impacting domestic gas and electricity rates. For millions of households in the UK, energy bills are regulated by Ofgem’s price cap, which is set to increase by 13% in July. “UK inflation is likely to rise over the summer following the new Ofgem price cap in July, marking a peak in inflation rates, so for now, the inflation data seems like the calm before the storm,” explained Victoria Scholar, head of investment for Interactive Investor.
Some analysts forecast no further increases in the benchmark rate for the remainder of the year, although the situation remains very much up in the air. Just last week, the European Central Bank decided to hike its interest rate for the first time in nearly three years, citing the conflict as “generating inflation pressures.” The BoE’s base rate is what it charges other banks and building societies for borrowing money, which directly influences what these banks charge their customers for mortgages and the interest they pay on savings.
As of June 17, the average rate on a new two-year fixed mortgage deal stood at 5.60%, a rise from 4.83% at the beginning of March when the Iran conflict kicked off, according to financial service Moneyfacts. Meanwhile, for those looking at five-year deals, the average rate soared to 5.57%, climbing from 4.95% during the same timeframe. Amid fears that demand might dwindle, the council has consented to increase the maximum fares for Hackney carriage journeys. Applications are now open for funding aimed at assisting families with school essentials. The founder of a local initiative noted that escalating childcare costs mean many of those they support are employed yet still struggling. Additionally, reduced social tariffs allow numerous individuals on benefits to secure cheaper deals on water, broadband, and phone services. Alarmingly, nearly eight fraud cases involving stolen money are reported in the UK every minute.
Kaynak: Orijinal Haber