Could the Bank of England follow Europe’s lead on interest rates?

The European Central Bank is getting ready to lower interest rates next week. This is putting pressure on the Bank of England to do the same.

Policymakers at the European Central Bank are planning to reduce borrowing costs when they meet on Thursday. This comes before the next Bank of England meeting in June. At that meeting, the Bank of England will decide if they should cut interest rates from their current 16-year high of 5.25%.

Cutting interest rates would be good news for homeowners. Last week, official figures showed that UK inflation dropped sharply in April to 2.3%. Prime Minister Rishi Sunak said this means "brighter days ahead" and that inflation is "back to normal".

The economy has also started growing again after a brief dip into recession at the start of 2024. However, the Bank of England's monetary policy committee decided to keep interest rates high last month.

Investors think the European Central Bank will lower their rates by 0.25 percentage points from a record high of 4%.

ECB policymaker Olli Rehn said the "time is ripe" to start cutting rates next month, as long as energy prices don't rise again.

What are interest rates?

Interest rates tell you how much it costs to borrow money or how much you'll earn on your savings. If you're a borrower, the interest rate is the amount you're charged, shown as a percentage. The higher the percentage, the more you have to pay back.

If you're a saver, the interest rate tells you how much money will be paid into your account, as a percentage of your savings. The higher the rate, the more you'll earn.

Even a small change in interest rates can make a big difference. That's why it's important to keep an eye on whether they rise, fall, or stay the same.

The bank rate is the key interest rate in the UK. It's set by the Bank of England and influences the rates that banks and building societies offer.

What do interest rates mean for you?

If interest rates rise, borrowing will become more expensive. This could make it harder to afford things like mortgages and car loans.

However, interest rates can also go down. This would mean lower monthly repayments.

If you're struggling with mortgage payments, there is free help available. Lenders may let you switch to interest-only payments or extend your mortgage term without extra checks.

Get in touch if you'd like to discuss what support is available.