Jeremy Hunt says the cost of living crisis is coming to an end
It signals the nation’s economic fortunes are blossoming as inflation continues to tumble are blossoming as inflation tumbles.
Mr Hunt said: “We are starting to see the tide turn against high inflation, but we will continue to do what we can to help households struggling with mortgage payments.
“Now is the time to see the job through. We are on track to halve inflation this year and sticking to our plan is the only way to bring interest and mortgage rates down.”
Don’t miss… Top UK cities where debts have shot up over past year
The Bank’s decision to keep rates at 5.25 percent was made easier because inflation has fallen for the past three months in a vindication of Rishi Sunak’s economic policies.
Although the cost-of-living crisis is not over, it is a further sign things are getting better. Some experts are predicting interest rates could start to fall from their current 5.25 percent in the first half of next year.
Inflation, now at 6.7 percent, is forecast to drop to 3 percent in 2024, massively easing the burden on hard-pressed households.
The UK has also seen the fastest economic growth in the G7 over the past two years.
Rishi Sunak said he is focused on bringing inflation down as quickly as possible.
The Prime Minister said: “I know things are tough right now for families and businesses with the cost of living. And that is why my number one priority coming into this year was to halve inflation.
“And that is what we are delivering. In the meantime, we have got support in place to help families that are struggling, whether it is those on welfare or those with mortgages.” Senior Conservative MP Andrea Leadsom said the pause in rates is “a welcome reprieve for many”.
The BoE base rate is often used by banks to set the rates they offer to customers on loans, savings and mortgages. Another 0.25% hike could have added hundreds of pounds to people’s mortgage bills.
It was the first time since November 2021 that the monetary policy committee has not raised rates following 14 consecutive increases designed to cool soaring inflation.
James Smith, an economist at ING, expects the “tightening cycle” is now over, paving the way for rate cuts next year. He said: “Barring unpleasant surprises in the next round of wage and inflation data, we suspect the tightening cycle is now over.”
And he said while the Bank was “leaving all options on the table for November”, ongoing falls in inflation means “we think the Bank will remain on hold for the foreseeable future”. Rate cuts could even be on the cards next year, he said. And he added: “We suspect we could see initial cuts by the middle of next year.”
Although those interest rate changes have curbed price growth, they have heaped misery on homeowners. The average rate on two-year and five-year mortgages are up to their steepest point in a decade and a half – at 6.58 percent and 6.07 percent respectively.
House prices have also tumbled more than 5 percent annually, the worst decline since 2009. The pause in rates comes after a close decision, with five monetary policy committee members opting to freeze and four choosing to raise them.
Bank Governor Andrew Bailey, who voted for the pause, said: “Inflation has fallen a lot in recent months and we think it will continue to do so. That’s welcome news. But there is no room for complacency. We need to be sure inflation returns to normal and we continue to take the decisions necessary to do just that.”
Shadow Chancellor Rachel Reeves said inflation still remains high and households coming off fixed-rate mortgages will still be worse off because of Liz Truss’ “disastrous” mini-budget last year.
She added: “Labour’s plan for the economy is about returning stability and boosting growth so we can cut household bills, create better-paid jobs and make working people in all parts of the country better off.”
Tighter interest rates were starting to damage the economy, the Bank said, leading to a downgrade of GDP growth for the rest of the year. Output contracted 0.5 percent on July.
And senior Conservatives have heaped pressure on Mr Hunt to cut taxes ahead of the next election after lower public borrowing than forecast. They insisted reducing the tax burden on hard-pressed Britons would give the party a much-needed poll boost. The welcome economic news comes a day after inflation fell for the third month in a row.
Economists said the lower-than-expected borrowing figures would give the Chancellor some “wiggle room” for tax cuts.
Tory MP Marco Longhi said slashing personal taxes, VAT and corporation tax would “have the dual benefit of stimulating economic growth and being less inflationary”.
Official figures showed August public sector net borrowing at £11.6billion – lower than the £13billion predicted by the Office
for Budget Responsibility.
Borrowing for the financial year so far hit £69.6billion, below the £81billion forecast.
Ashley Webb, of Capital Economics, said: “We would be surprised if the Chancellor doesn’t find wiggle room for tax cuts and/or spending rises in the Budget in March.”
But Mr Hunt has warned that there will be no pre-election “borrowing binge”.
He has fought off pressure from Tories to pledge tax cuts, repeatedly playing down the prospect of major giveaways in his Autumn Statement, due on November 22.