Interest rates to remain low in BoE report

The Bank of England uses the quarterly Monetary Policy Report (MPR) to project inflation rates and analyse the UK economy, which is then used by the Monetary Policy Committee to decide on the interest rate in the immediate future.

The report of the first quarter of 2021 states that the Bank of England is committed to supporting the economy during the COVID pandemic by keeping interest rates low.

The Bank of England’s inflation target

The Bank of England’s overarching target is to gradually increase inflation to 2%, whereas it is currently sitting at approximately 0.7%. The forecasts predict that by the second and third quarters of 2021, the rate will be almost at 2%, with the target being achieved by the end of the year.

By increasing the rate of inflation to 2% in a stable way, it will stimulate the job market and help people plan for the future. One of many ways of achieving this is by keeping interest rates low.  

0.1% tnterest rate staying for now

The Bank of England slashed the interest rate to 0.1% at the start of the pandemic in 2020, and it has remained there since. By cutting the interest rate, it allows building societies, banks and mortgage providers to borrow money from the Bank of England and keep interest rates low for their customers, such as businesses and homebuyers.

This is not the first time the Bank of England has responded to a wider issue by dropping the base rate of interest. They notably did the same during the financial crisis of 2008 by reducing it from 5% to <1%.

What does this mean for property buyers?

The combination of lower interest rates and a Stamp Duty holiday makes it a great time to buy for some people.

Choosing the most suitable mortgage will still be crucial. You may want to discuss mortgages that are fixed against the current lower interest rate set by the Bank of England. Consider speaking to one of our experienced mortgage providers at Euxton for professional and tailored advice.

Vaccinations are strengthening the economy

The economic downturn has been due to the pandemic, so it may not come as a surprise to see the vaccination programme aiding the UK economy. With more people becoming vaccinated, social restrictions are being lifted, which then allows businesses to operate with a larger degree of normality – and profitability.

Simultaneously, it increases confidence among the population to go outside and spend. Those who have managed to save more than normal during restrictions may be willing to spend more in the aftermath too. These behaviours will contribute to reviving the economy over the next year, and help the Bank of England to inch towards its 2% inflation rate target.

June 2021