The Bank of England is set to hold a hawkish tone on interest rates during its June meeting, despite the UK economy slowing down. The Organisation for Economic Co-operation and Development (OECD) has reported that the UK's economic growth has slowed to 0.2% in the first quarter of 2023, down from 0.5% in the previous quarter.
This slowdown, combined with lingering inflation at 2.5%, according to the Consumer Price Index (CPI), is expected to influence the Bank of England's decision on interest rates. The CPI has remained above the 2% target for several months, leading to concerns about the impact on UK households and businesses.
According to a Reuters poll, 15 out of 24 economists expect the Bank of England to hold interest rates at 5.25%, while 8 predict a 0.25% cut. However, some experts warn that a further rate hike could be on the cards, depending on the inflation data.
The FTSE 100 has been impacted by the uncertainty surrounding interest rates, with the index experiencing a 2.5% decline in the past week. This volatility could have a ripple effect on UK businesses and investors.
For UK savers, a hold on interest rates could mean that the returns on their savings accounts will remain low, while mortgage holders may face increased borrowing costs if rates rise further. Investors, on the other hand, may need to be cautious as the economic uncertainty continues.