INSIGHTMOTORSPORTCONTACT
In our Market Insights, Prosperity Investment Management examines the latest developments across the globe's biggest financial markets - providing you with all the latest information you need to know.
Bank of England holds interest rates at 5.25% and warns they will remain high
The UK economy is likely to see zero growth until 2025, while interest rates remain high for longer or rise further, the Bank of England has warned.
The news comes as the UK economy grew marginally by 0.2% in August following a sharp fall in July. Rates were held at 5.25% in September, ending a run of 14 consecutive rises after inflation started to slow dramatically.
It came as the Bank of England left rates on hold for the second time in a row at 5.25%, their highest level in 15 years. Rishi Sunak has pledged to get the UK growing by the end of the year, but the lower forecasts put this in doubt.
However, the bank expects inflation to fall sharply in the coming months. This therefore means the prime minister is on track to meet his promise to halve inflation to around 5% by the end of the year.
Up until September, the Bank of England had raised rates 14 times in a row to tame soaring inflation which has been squeezing households. It has led to increases in mortgage payments, squeezing borrowers, but also higher savings rates as a result.
The most recent inflation figure was 6.7% in the year to September, but the Bank of England expects it to continue to fall as energy and food price rises begin to ease, and expects it to remain at around 3% throughout next year, above the Bank's target.
While the Bank is not predicting another recession, it expects zero growth from now, across the whole of next year - when there is likely to be a general election - and into 2025.
Mortgage rates have shot up as the Bank of England has put up interest rates. This has dramatically affected first-time buyers, people remortgaging and those on variable and tracker deals as a result.
In the UK, the rate on an average five-year, fixed-rate residential mortgage is 5.87%, down slightly from levels seen earlier this year but still high compared with a few years ago.
US Federal Reserve holds interest rates at 22-year high
The US central bank has held its key interest rate at its current 22-year high as it seeks to stabilise price rises, which had recently reached near-record levels.
The Federal Reserve's rate target remains at 5.25%-5.5%. The bank has recently been raising borrowing costs with the hope of cooling the economy and slowing down the rising rate of inflation.
It comes after recent data showed the US economy grew faster than expected. Raising interest rates is one tactic that central banks can use to tackle inflation. With the theory being that by raising interest rates and making it more expensive to borrow, consumers will spend less and this would therefore lead to slower price rises as a result.
The bank had faced criticism as of late, with some suggesting that holding interest rates at higher levels could put the US economy at risk of entering a recession once more.
But the economy grew by a better-than-expected 4.9% from July to September. The figure was a big jump from the previous three months and was helped predominantly by a tighter jobs market and increased consumer spending.
It signals that the central bank may delay lowering interest rates, as inflation currently stands at 3.7% in the US, which is still above the Fed's target of 2%.
In many economies around the globe, higher borrowing costs have led to more expensive loans for businesses, homes and other goods and services, with the end of an era of low-cost borrowing.
