UK interest rates

18 Jan 2020

UK interest rates might be cut soon

The United Kingdom is going through a lot of trouble recently. Problematic issues are being discussed in several environments, being Brexit and the royal family the most famous ones. Considering how much this type of matter impacts economic stability, we should expect effects such as interest rates or inflation. However, this is not what British people are facing nowadays. Instead, inflation is falling and, because of that, UK interest rates might be cut very soon.

According to BBC, the inflation rate dropped to 1.3% in December, following the 1.5% November rate. That is partly due to a fall in the price of women’s clothes and hotel room costs as well. These are great numbers, mostly when we consider that this is the lowest rate the UK has reached since November 2016. Besides, analysts said it raised that the current situation improved the chances of a rate cut. Remember: these are speculations, no public announcements.

UK interest rates
Understand why UK interest rates might be cut soon! (Source: Klook)

Inflation is going down

Since inflation rates are below the Bank of England’s target of 2%, the speculation about UK interest rates fall has increased. When it comes to this matter, it is this Bank’s main interest rate that is used by many other banks and lenders who set borrowing costs. Because of that, the possible decision for fewer interest rates will affect mortgages and business loans, for instance. Besides, we should also consider the big effect it will have on the finances of individuals and companies.

Despite all these benefits, market indicators suggest a 60% chance of it happening. On the other hand, city traders are convinced of it. According to them, last November was a moment when the UK economy shrank. This was mostly due to the pre-election political uncertainty, but nowadays there is little sign of inflationary pressure that has the power to avoid recovery. That being so, people and companies have found the confidence to invest and spend again.

From all this, it should be clear that 60% of chances to see the  UK interest rates fall is not indicative that it will happen soon. It is possible that the Bank of England assumes a more conservative profile and that it will wait to see if inflation will maintain steady levels. In order to follow the news about UK economic scenario, keep reading our articles. If you are expecting a decrease in interest rates, share your perspectives with us!

Source: BBC