Let’s talk about the United Kingdom’s interest rate


2021 has started in an exhilarating way, so we have some reasons to be happy. The recent inflation rates spikes, that were visible in the first months of the year, have caused us all some headaches, especially when it came to the Interest Rate. The professionals will of course follow this story as it goes on, but as for today it looks like the United Kingdom’s rates have calmed down. They are staying below the 0.1% mark, which is optimistic.

It was the Bank of England (and more precisely BoE’s Monetary Policy Committee), who agreed in the closing days of June, that they would keep the Bank Rate below the 0.1% mark. The decision was unanimous.

But we should really be careful when listening to the announcements of speedy recovery. We have already heard promises of ‘gangbusters recovery’, and ‘rip roaring recovery’. And it does not matter, who is touting this growth – Central Banks, Economists, or even the CEOs of the Banks. But why it looks like things may be different this time?

The reason for the rate to remain unchanged

The next review is planned to be done in August, and only then we will see, if the previous decisions regarding the Bank Rate were correct. And as the rate remains the same for now, this is hard to predict, what may happen when the Committee will meet and reevaluate their previous findings in early August.

The last time they gathered, that made a point about how the global GDP developments regarding the growth have somewhat been stronger than they anticipated, with the special recognition to the ‘advanced economies’. So, this optimism could suggest that there is no need to keep the stimulus measures, as they might have become redundant. But that is not the case.

The Bank of England has committed to continue their actions and maintain their easing programme as expected, which is £875 million. But this outlook is less gloomy, should we take the inflation into the consideration. And here the experts from the United Kingdom seem to be agreeing with what we could hear from the ones from the United States. They claim that the inflation expectations suggest that the strength of this phenomenon is in fact transitory.

This could give the citizens of the United Kingdom a bit of breath, that the future looks better and better, especially after the hard beginning of the year, which is connected directly to the Brexit. So, the prospects are encouraging, but this does not mean that there are no more challenges left for us to face. With less and less furloughed jobs, being the result of rising demand on the market, and the vacancies rising, there are some concerns regarding the difficulties for the companies and institutions when it comes to the recruitment processes.

To sum it all up, with all the challenges ahead, and the present economic outlook, the MPC (Monetary Policy Committee) does not foresee any changes and amendments in the monetary policy, until the inflation ‘freezes’ at around 2%, and stays there for a visibly sustained time period.

So, was the Bank of England’s decision right for the consumers?

In 2020, we have seen perfectly how the DGP in the United Kingdom collapses. Actually, the UK’s economy was hit more intensely than Italian or Spanish ones, although these two countries struggled immensely with Covid-19. Economists add to that, claiming that in 2020 the economy of the United Kingdom shrunk more than the one from the United States. And with more Gross Domestic Product to compensate (more than the U.S.), this may mean that the inflation will eventually start to spiral. And we could see that in the next months, if not weeks.

This is one of the things that Jason Cozens, Glint’s CEO and Founder, told Disruption Banking. He also explained his concerns and spoke further about the inflation and GDP rates. To find the full quoted statement, you should definitely use the following link, and join Disruption Banking website. There, you’ll find a fascinating piece written by Andy Samu, where he dwells on the topic of the UK’s interest rates, and gives a great expertise on its economic outlook: https://disruptionbanking.com/2021/06/24/what-is-the-interest-rate-in-the-uk/.