What will happen to interest rates next week and what it means for you

Bank of England policymakers will next week meet to decide on the next move for interest rates with millions of borrowers hoping for a repeat of last month’s long-awaited cut.

However, members of the central bank’s monetary policy committee will have to weigh up a range of contrasting economic indicators, with many forecasters predicting a hold at next Thursday’s meeting.

When it voted to reduce interest rates for the first time in more than four years on August 1, the Bank of England warned that the fall-away of energy bills in the wider inflation figures would show “more clearly the prevailing persistence of domestic inflationary pressures”. Since the rate cut was implemented, it has emerged that inflation has nudged up to 2.2 per cent from the central bank’s target of 2 per cent.

The economic outlook is far from clear as Bank of England rate-setters prepare to meet.

Meanwhile, over the past quarter, unemployment and inactivity have fallen, while employment has risen - signs of underlying economic resilience that make a rate cut less likely. Wage growth has slowed, but remains ahead of inflation, so it remains a potential inflationary risk.

Experts said a lot would be riding on inflation data for August, which is due out just a day before the interest rate decision.

Susannah Streeter, head of money and markets at investment platform Hargreaves Lansdown, said: “Financial markets are pricing in the likelihood that the bank will keep rates on hold this month at around 75 per cent. Although two interest rate cuts are priced in before the end of the year, it’s looking more likely that they will land in November and December.”

Mark Hicks, the firm’s head of active savings, said the decision to keep rates on hold this month was “already largely baked into” the deals on offer to savers, as are the two rate cuts forecast before the close of 2024.

“The expectation of lower rates in the coming months has been behind the slow slide of [savings] rates throughout this year, and it’s why only a handful of accounts are still clinging on above 5 per cent. Savings rates aren’t moving at a tremendous pace, but over time, it’s starting to make a serious difference.”

Sarah Coles, head of personal finance at Hargreaves Lansdown, added: “There’s good news and bad news on mortgages. The good news is that fixed rate deals are on their way down, because the cuts expected later this year are already priced into these products.

“Meanwhile, there’s bad news for those on variable rate mortgages, who could easily have waited for over a year for a cut they had expected to be imminent. They now have to wait another month or two to make another inroad into their monthly payment.”

Thomas Pugh, UK economist at audit, tax and consulting firm RSM UK, said the Bank of England was likely to sit on its hands next week, with a 7-2 vote expected in favour of keeping rates on hold.

“After the European Central Bank cut interest rates this week and with the Fed almost certain to cut interest rates next week, the Bank of England will be the exception in keeping rates on hold on Thursday,” he noted.