Bank of England will announce whether it is going to cut down the interest rates on Thursday. The ‘base rate set by the bank is used by banks across the UK and used by lenders as well for borrowing purposes.
Some people in the UK feel that this could be the first rate cut declared by the bank since 2016 but others are saying that it is still very close to determine exactly what the officials have in mind.
The current base rate is 0.75%. It affects every aspect of business from giving mortgages, to borrowing or lending loans to individuals and companies. If the base rate is cut it would have a direct effect in the economy.
The cut in base rate is being considered because retail inflation has recently dropped in the UK. In November last year it 1.5% while in December it dropped marginally to 1.3%. The drop was largely contributed due to the fall in the prices of hotel rooms and women clothing.
If Bank of England fells that the inflation rates will remain under its projection of 2% for this year it might slash its base rate and thus reduce the overall rate of borrowing and thus encourage spending.
On the other hand the retail sales market has gone down since the Christmas holidays. During the Christmas holidays the general trend of the consumers was to buy cheaper goods and gifts for their relatives and friends and did not spend too much money. The retail sales in England have fallen by 1% in December.
The rise in the UK economy is also not good considering it just grew by 0.1% in last three months. This was due to the fact the services sector and the production sectors were down.
Economists at the Bank of America expect the Bank of England to cut down the interest rates by 0.5%.
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