UK interest rates will stay high and could rise again, says Bank

Interest rates are likely to stay high for longer and could rise again despite new forecasts that the UK economy will now see zero growth until 2025.

The Bank of England warning came as it left rates unchanged for the second time in a row at 5.25%, their highest level for 15 years.

The Bank also expects the pace of price rises to fall sharply in coming months.

But Governor Andrew Bailey said it was “much too early to be thinking about rate cuts”.

Inflation, which measures the pace at which prices are rising, stood at 6.7% in the year to September.

The Bank expects it to fall to 4.8% in October and drop further next year, as energy and food price rises ease.

It means Prime Minister Rishi Sunak is likely to fulfil a pledge to halve inflation by the end of this year to around 5%.

But his target to get the economy growing by the end of the year is now in doubt, after the Bank lowered its growth forecasts.

While it is not predicting recession, it expects zero growth from now, across the whole of next year – when there is likely to be a general election – and into 2025.

“UK economic growth is slowing,” the Bank said in its inflation report.

The forecast also shows that while inflation will come down, it will remain above the Bank’s target of 2% throughout next year, at around 3%.

Chancellor Jeremy Hunt promised there would be measures to get Britain growing again in his Autumn Statement later this month.

“The Autumn Statement will set out how we will boost economic growth by unlocking private investment, getting more Brits back to work, and delivering a more productive British state.”

Up until September, the Bank of England had raised rates 14 times in a row to tame soaring inflation which has been squeezing households.

It has led to increases in mortgage payments but also higher savings rates.

While inflation is easing, the Bank said interest rates are likely to “need to be restrictive for an extended period of time”.

And Mr Bailey said: “We’ll be watching closely to see if further rate increases are needed.”

‘Buying our first house seems further and further away’

First-time buyer Ebony

Ebony Cropper’s rent has gone up, making saving for a deposit to buy a home harder

Ebony Cropper from Warrington and her fiancé are saving up for a deposit to buy their first home. But while they are budgeting hard, their rent went up an extra £45 a month in August making the job harder.

“We got engaged this year but then I think [the wedding] has got to wait because it’s a big expense as it is for just one day and a house is more important,” she told the BBC.

“It just feels a bit futile at the moment because your goal [of owning a home] is getting further and further away.”

Cost of living: Tackling it together

Cost of living: Tackling it together

Ways to save money on your mortgage

1. Make overpayments. If you still have some time on a low fixed-rate deal, you might be able to pay more now to save later.

2. Move to an interest-only mortgage. It can keep your monthly payments affordable although you won’t be paying off the debt accrued when purchasing your house.

3. Extend the life of your mortgage. The typical mortgage term is 25 years, but 30 and even 40-year terms are now available.

Read more here

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