In the February 2024 Monetary Policy Report, the Bank of England decided to keep interest rates at 5.25%. They have made this decision as the higher interest rates are working to reduce inflation.
The Bank of England have predicted that inflation could fall to the 2% target within the next few months. However, inflation then could slightly rise again. The Bank of England aims to keep interest rates high for long enough, so inflation will settle at 2%.
Through the use of higher interest rates for the past two years, there has been slower price rises which led to the Bank of England deciding to hold interest rates at 5.25%. By using higher interest rates makes it more expensive for people to borrow money but otherwise encourages them to save – meaning that people will spend less money.
It is noticeable that following the COVID-19 pandemic, many people are facing higher borrowing costs but high inflation that lasts for a long period means that people will face more financial hardship in the long term.
In 2022, inflation was at a peak of 11% and fell to 4% in December 2023. The Bank of England expect inflation to fall further to 2.75% by the end of 2024. In the last year utility and petrol prices have decreased however, food prices are now slowly rising.
The Bank of England has its eyes on getting inflation down to 2% and keeping it there. The Bank of England’s Monetary Policy attempts to reach the 2% inflation objective while maintaining employment and growth.
However, we can’t rule out another increase in inflation if there is more global turmoil. High inflation impacts everyone but especially those who are struggling financially in the first place.
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