Market News

The Bank of England interest rate decision is on a “knife edge” as millions of mortgage borrowers wait to see if the base rate will finally be cut tomorrow.

The base rate is currently set at 5.25% - its highest level for 16 years - after being paused for the last seven Bank of England meetings. But now inflation has fallen back to the Bank of England target of 2%, speculation is rife as to whether an interest cut will now follow.

The Consumer Price Index (CPI) measure of inflation fell to 2% in May, its lowest level in three years - but inflation remains sticky and stayed at this level in June, the latest reading to date. Bank of England governor Andrew Bailey has previously warned that its Monetary Policy Committee (MPC) will only cut interest rates once they're confident inflation will remain under control.

Millions of mortgage borrowers will be hoping for good news, but we won't know until 12pm tomorrow if interest rates will finally be cut - but experts are sharing their predictions for what may happen. Market traders are now pricing in a 60% chance that the central bank will lower rates tomorrow, according to Reuters.

Jane Foley, head of FX strategy at Rabobank in London, told the news agency: "If we just go back week or two ago, the market was thinking 50:50 chance of a rate cut but economist surveys are more confident that there will be a move this week."

Dan Hanson and Ana Andrade, from Bloomberg Economics, said: "The Bank of England's August policy decision is on a knife edge. It's hard to have a strong conviction about the outcome of the August meeting but, on balance, we think a cut is more likely than a hold."

Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, said the Bank of England will have many factors to consider. She said: "UK Inflation may have held at the BoE’s target level of 2% in the 12 months to June, but the central bank will have concerns about other measures of underlying inflation which remain stubbornly high.

"These include sticky services inflation, a crucial driver of overall inflation, which remained at 5.7% in the 12 months to June, the same level as the previous month, while wage growth, which is easing, remains hotter than hoped and continues to outpace price rises. "Throw in stronger economic growth in May, with gross domestic product expanding by 0.4% in May, double the expected figure, set against a picture of rising unemployment, which now stands at 4.4% – something that may help to ease wage pressure - and it’s easy to see why the BoE has a difficult decision on its hands.”