Economic growth shows promise, yet questions linger over the potentially rising inflation due to interest rates.
In the midst of preparations for a general election scheduled for a few months, the Bank of England (BoE) has decided to maintain high interest rates, aiming to control inflation that was still quite elevated around March 2023.
According to recent data, inflation rates have been on a steady decline throughout 2023-2025, reaching a low of 3.4% in February 2023 – the lowest in almost two and a half years. In response to this downward trend, the BoE gradually started cutting interest rates, with the first cut bringing the rate down to 4% in August 2025, the lowest since March 2023.
These cuts aim to bolster economic growth by reducing borrowing costs despite inflation remaining somewhat above the 2% target set by the BoE. The Bank has emphasized a "gradual and careful" approach due to mixed economic signals such as a softening labor market and sluggish growth projections.
Investors expect inflation to continue falling throughout the next few months, and economists had predicted February's inflation figure to fall to 3.5%. The BoE is forecasting that CPI will fall below 2% in April, indicating a significant improvement in the inflation landscape.
However, the falling inflation rates have not alleviated all financial pressures. One in 20 adults reported that they couldn't afford food in data from the Office for National Statistics (ONS) published in 2023, and around 35% of adults reported it was difficult to afford their rent or mortgage payments.
The BoE's decision to maintain high interest rates has sparked concerns among some, such as Daniel Austin, CEO and co-founder at ASK Partners. He claims that keeping interest rates high will have detrimental effects on people and businesses paying back bank loans, particularly as property loan extensions come to an end, forcing borrowers to inject new capital, return assets to lenders, or sell in a soft market.
Political figures have also weighed in on the economic situation. Chancellor Jeremy Hunt has stated that the falling inflation rates indicate the success of the Conservative economic plans, provided that they do not increase borrowing or cut funding for public services. However, Labour's counterpart, Rachael Reeves, has expressed concern about another four years of a Conservative government. She has dismissed Hunt's claim, stating that prices remain high and that the tax burden is at its highest in 70 years, with mortgage payments increasing.
Ms. Reeves has not explicitly supported any economic plans presented by her party. Instead, she has pointed out the challenges faced by many households and businesses, urging for a more comprehensive approach to economic recovery.
In the midst of these debates, the BoE is expected to leave interest rates unchanged on Thursday 20 March, marking a plateau or peak in rates before subsequent easing tied directly to falling inflation rates and a weakening economy in later months.
[1] Bank of England Monetary Policy Committee Press Release, March 2023 [2] Office for National Statistics, February 2023 Consumer Price Inflation [3] The Guardian, March 2023, 'Bank of England keeps interest rates on hold as inflation falls' [4] BBC News, March 2023, 'Bank of England keeps interest rates on hold'
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