Jonathan Haskel, a member of the Bank of England’s Monetary Policy Committee, believes interest rates should be held at 5.25% until there is more certainty that inflation pressures have subsided. Haskel expressed concerns over the UK’s tight job market and worker shortages, which could keep inflation above the 2% target for some time. Financial markets have priced at roughly a 60% chance that rates will be cut in August for the first time since 2020.
However, Haskel, who voted to hold rates in June, believes fellow policymakers should remain cautious. He noted that while there were encouraging signs of inflation falling, the rate would stay above 2% for quite some time. The Bank of England’s primary role is to keep inflation stable at 2%.
In response to high inflation, the Bank has raised and maintained interest rates at a high level.
Haskel emphasizes a cautious policy stance.
The theory behind rising rates is to slow inflation, but it can also drag on economic growth as businesses may put off investment or hiring, potentially leading to fewer jobs being created.
Worker shortages can also impact inflation, as employers may need to raise wages to attract and retain staff. This can lead to higher prices for goods as businesses increase their prices to cover costs. Some mortgage lenders are factoring in a potential drop in the benchmark rate when setting the interest rates they charge on new fixed deals.
The Nationwide and Virgin are among the latest lenders to reduce rates, following other lenders in recent weeks. The average two-year fixed mortgage deal on Monday was 5.93%, while a five-year contract was 5.51%, according to financial information company Moneyfacts. The primary UK interest rate also informs High Street banks’ rates on savings accounts.
Higher borrowing costs have contributed to financial pressures on household budgets in recent years, exacerbated by higher energy and food bills.
