Phaara
BBC Business Reporter
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Interest rates should be reduced by the Bank of England later, in a close move by households and economists.
Analysts provide that the reference rate will be reduced by 4.75% to 4.5%, because the bank is underway to stimulate the British economy which has shown slow growth.
The banking rate is the main tool aimed at controlling inflation, and the hopes of a drop increased after the inflation rate – which traces the cost of living – fell to 2.5% of the ‘Year to December.
However, it remains above the banking target by 2%, and changes in the budget should raise it.
Economic uncertainty has been reinforced, due to the introduction or threat of American President Donald Trump of import prices. They could cause inflationary pressure on a global scale, causing a training effect on price increases in the United Kingdom.
Why do interest rates change?
The bank brings up and descending the rates to try to control inflation, which measures the rate of the overall price increases.
By increasing the rates, the loan is made more expensive, so people have less money to spend. People can also be encouraged to save more.
In turn, this reduces the demand for goods and slows down the rate at which prices are increasing.
But it is an act of equilibrium – the increase in borrowing costs The risks harmful to the economy because it discourages companies from investing and creating more jobs.
Once the price increases are more under control, the bank will plan to reduce interest rates.
Its basic interest rate strongly influences the prices of high street banks and other money lenders invoice loans, credit cards and other financial agreements to customers.
This is obviously seen in the cost of mortgages. The basic rate reduction would see an immediate impact for those who on “Tracker” mortgages.
About 629,000 mortgages have tracker agreements. As a general rule, their monthly reimbursement would drop by about £ 29 due to the drop of 0.25 percentage of points expected later.
A similar number of households have variable rate agreements, and lenders will be under pressure to reduce their prices if the bank reduces the basic rate.
Fixed rate transactions do not change immediately, but the expectation of new rate decreases could lead to new or renewed borrowers to get a better deal.
The savers would be affected by a drop in the basic rate, as the yield they receive from banks would also be likely to be reduced.
‘Progressive approach’
In December, when rates took place at 4.75%, the governor of the bank, Andrew Bailey, said that he would take a “gradual approach to future interest rate reductions”.
But he added: “We cannot commit ourselves when or by how much we will reduce rates in the coming year.”
In the minutes of this meeting, the bank said that there was an uncertainty “on how the measures that had been announced in the fall budget affected growth.”
After the November meeting, Mr. Bailey would not be registered on the impact of Trump’s prices on the British economy, saying “wait and see”.
In the United States, the Central Bank – The Federal Reserve – said it would lower rates at a slower rate this year.
When the bank announces its interest rate decision at 12 noon, it will also share a report on the place where it sees inflation taking place in the coming months and could refer to its strategy in response.
The reduction in the British interest rate would establish a balance between “supporting an economy which seems to have a complete reason and prevent the inflation from taking off,” the economist Paul Dales told the capital economy at the BBC.
“It is unlikely that Trump’s prices greatly influence interest rates in the United Kingdom,” he added, but wage growth being faster than bank forecasts could not influence its decision.
The British economy increased less than scheduled in November, after not having increased at all in the previous two months. Another slowdown is expected, companies that prepare to increase costs from April due to budgetary changes such as the increase in national insurance contributions and the higher minimum wage.
Economic figures occurred after the recent turbulence in the financial markets have sent the government’s borrowing costs to the highest level for several years and the value of the book.
