Boost for millions as expert gives Bank of England ‘this month’ update | Personal Finance | Finance
Brits have been handed financial hope this month as they struggle with the cost of living.
Millions have been told that interest rates may not rise this month after a Bank of England expert said he was comfortable keeping borrowing costs on hold unless a “worst-case scenario” emerges. Alan Taylor, a member of the Bank’s Monetary Policy Committee (MPC), said he did not believe higher interest rates were needed to combat inflation pressures linked to the conflict involving Iran, despite concerns about rising energy costs.
Speaking to Sky News, Mr Taylor said: “I feel comfortable where we are unless we get the worst-case scenario. But I really want to get that sense that this is moving behind us.”
The comments are likely to be welcomed by millions of households facing mortgage renewals and businesses worried about higher borrowing costs ahead of the Bank’s next interest rate decision on June 18. The Bank Rate currently stands at 3.75%, after policymakers voted to leave rates unchanged at their most recent meeting.
Markets overwhelmingly expect rates to remain on hold again this month, although investors still see a risk of one or two quarter-point increases later this year if inflation remains stubbornly high.
Mr Taylor’s intervention is significant because he has consistently been one of the MPC’s more dovish members. Before the Iran conflict began, he was among the strongest advocates of lower interest rates and has repeatedly argued that weakening economic conditions pose a growing threat to growth.
His remarks contrast with those of fellow MPC member Megan Greene, who warned last week that the case for a rate rise becomes stronger the longer the conflict continues because of the inflationary impact of higher energy prices.
For borrowers, the latest comments may help calm fears that the Bank is preparing to tighten policy again after months of uncertainty over the inflation outlook.
There are also signs that businesses are becoming less concerned about passing higher costs on to consumers than they were earlier in the conflict.
A closely watched Bank of England survey published on Friday found firms expect to increase prices by 4.0% over the coming year, down from 4.4% in April, when fears over the inflationary impact of the conflict were at their highest.
The Bank’s Decision Maker Panel, which surveys more than 2,000 businesses, found inflation expectations remain above the 3.4% level recorded in February before the conflict began. However, the decline from April suggests some of the initial energy-price shock may be fading.
Just 57% of firms said they expected to raise prices in response to higher energy costs, down from 64% a month earlier. Meanwhile, 68% expect lower profit margins, indicating many businesses may absorb at least part of the increase rather than passing it directly on to customers.
The findings are likely to be welcomed by policymakers worried about so-called “second-round” inflation effects, where higher energy costs feed through into wider price increases across the economy. The survey also pointed to a cooling labour market, which could reduce inflationary pressures further.
Businesses said they expect employment levels to fall by 0.4% over the next 12 months, the biggest planned reduction in six months, while expected wage growth remained at 3.4% – matching its joint-lowest level since the survey began tracking the measure in 2022.
Rob Wood, chief UK economist at Pantheon Macroeconomics, said the figures offered some reassurance for policymakers. He said: “Rate setters can probably take some comfort that second-round effects through firms’ inflation expectations seem muted for now, and they need to contend with weaker job growth.”
The latest data adds weight to Mr Taylor’s argument that the Bank does not need to respond aggressively to the recent jump in energy prices.
Financial markets have become increasingly concerned that higher oil and gas prices could reignite inflation, forcing the Bank to raise rates again. However, Mr Taylor recently argued that the risk of inflation becoming embedded in the economy is lower than it was after Russia‘s invasion of Ukraine in 2022.
The Bank’s official inflation target remains 2%, but policymakers are trying to balance concerns about higher energy costs against signs that economic growth and the jobs market are weakening.
