Bank of England cuts rates by a quarter to 4.75% – London Business News | Londonlovesbusiness.com

As expected, the BoE cut rates by a quarter of a percentage point to 4.75%. Earlier in the year the markets were predicting a number of rate cuts by this point, but this is only the second cut of the year.

Commenting on today’s news, Victor Trokoudes, founder and CEO of Plum said:

“And now there’s growing scepticism over whether there will be another cut in December. Massive fiscal loosening financed by high levels of borrowing were announced last week by Chancellor Rachel Reeves, and this could mean further inflation, especially in the short term. As a result, the UK is now expected to have a slower easing cycle than the US and EU, with the OBR concluding that this higher public spending was likely to mean a slightly shallower path of interest rate reductions. Gilts are also under more pressure, with the re-election of Donald Trump as the US President having sparked an increase in Treasury yields given the expectation of a more expansionary American administration.

On the other side, the BoE have made substantial progress towards inflation, and they’ll be heartened that services inflation is no longer as sticky as well, having fallen from 5.6% to 4.9%. This should ultimately give the Committee greater comfort in cutting rates further, even if they get pushed into 2025. But even here, it’s likely that continued evidence of deceleration will be needed and in the meantime, the BoE will be in no rush to reduce rates, as stated by Governor Andrew Bailey recently.

The UK economy has been stuttering recently, so many will be hoping the mix of increased public spending and lower interest rates is a potent one and helps to drive growth.”

Consumer insight

“This is immediate good news for mortgage holders with tracker and standard variable rates. A mortgage holder with a £250,000 mortgage and 75% loan to value will see a reduction of around £35 per month in their mortgage payments.

Despite this rate cut, it still remains a challenging outlook for mortgage holders who are renewing soon, as they may have been hoping that the rate easing cycle would have gathered more speed by this point. Andrew Bailey had suggested rate cuts could become more aggressive if the positive news on inflation continued, so fewer reductions would be disappointing. For example, the quoted monthly interest rate on a 2-year fixed mortgage with an LTV of 75% was 5.99% in October 2022. While the quoted mortgage rate for the same type of product two years later is lower at 4.59%, mortgage rates remain relatively high compared to the previous decade. Rising mortgage competition and expectations of lower bond yields has meant there are some deals as low as around 4%. Mortgage holders will need a good broker to ensure they get the best possible deal, and consider fixing for longer at a rate they know they can afford, to avoid being left vulnerable to any future turbulence.

While the news isn’t so good for mortgage holders, it’s positive for savers as cuts to their interest rates haven’t been so quick or severe as anticipated. With the inflation rate currently sub 2%, there are still some great options out there for growing your savings that beat inflation. With more rate cuts likely on the horizon at some point in 2025, it may be worth considering a fixed-rate account. And with tax thresholds frozen until 2028, it will be important to maximise tax-free savings within wrappers such as ISAs. Cash ISA rates remain very high, especially as we approach the end of the tax year – Plum is currently offering 4.92% AER, which is one of the best on the market.”