Interest rates are expected to be cut by the Bank of England later, in a move closely watched by households and economists. Analysts predict the benchmark rate will be cut from 4.75% to 4.5%, given the recent weakness in the UK economy which has seen slow growth. The Bank uses interest rates as its main tool for controlling inflation, which is currently above the Bank’s target. However, inflation unexpectedly dipped at the end of last year, raising expectations of a rate cut. Inflation is forecast to rise again though, partly due to changes in the Budget as well as uncertainty around US President Donald Trump’s threatened use of tariffs. If he does introduce import taxes on countries, it could lead to inflationary pressure globally, causing a knock-on effect on price rises in the UK. The Bank moves rates up and down to try to control inflation, which measures the pace of overall price rises. By raising rates, borrowing is made more expensive, so people have less money to spend. People may also be encouraged to save more. In turn, this reduces demand for goods and slows the rate at which prices are rising. But it is a balancing act – increasing borrowing costs risks harming the economy as it discourages businesses from investing and creating more jobs. Once price rises are more under control, then the Bank will consider lowering interest rates.
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