Bank of England Cuts Base Rate to 4.75% – What It Means for Mortgages, Savings, and Inflation

The Bank of England recently cut the base rate by 0.25 percentage points, bringing it down to 4.75% from 5%. This base rate set by the central bank influences how much banks charge each other to borrow money, and therefore impacts rates on mortgages, loans, and savings. This is the second rate reduction this year, after an earlier cut in August.

Why the Base Rate Was Reduced?

The Bank of England’s Monetary Policy Committee (MPC), which sets the base interest rate, decided to lower the rate with an 8-1 vote. The Bank’s main goal is to keep inflation under control, ideally around a 2% target. At the moment, inflation is at 1.7%, but it’s expected to rise above this target next year. This is because the recent Autumn Budget introduced more government spending and higher National Insurance contributions for employers, which could mean higher prices for consumers.

Will Interest Rates Continue to Fall Future Outlook?

Experts think that more cuts may still happen, but they’ll likely be slower and more gradual than first thought. Paul Dales, an economist at Capital Economics, suggests that rates might only drop to 3.5% by early 2026, rather than the previously expected 3%. A stronger dollar could also push up inflation in the UK by making imported goods pricier, which might slow down any further cuts to the base rate.

bank of england base rate

How this New Rate Cut will Affects Mortgage Borrowers

  1. Fixed-Rate Mortgages: If you have a fixed-rate mortgage, your payments stay the same until your current term ends. But if your fixed period is ending soon, it could be a good idea to secure a new rate now to avoid moving to a more costly standard variable rate (SVR).
  2. Tracker Mortgages: If you’re on a tracker mortgage that follows the base rate, your payments will go down soon as the base rate is cut.
  3. Standard Variable Rate Mortgages: People on SVRs might see a drop in payments, but these rates are set by lenders and can change at any time. SVRs are often pricier, so it’s worth looking into a better deal.

Impact on Savings

The base rate cut means savings rates will probably keep going down. Chase and Co-op Bank have already announced lower rates, and other banks are likely to do the same. If you want to make the most of your savings:

Easy-Access Accounts: These accounts have lower rates but let you get your money whenever you need it. Look around for the best rates, as sticking with the same bank doesn’t always give the best deal.

Fixed-Rate Accounts: These accounts give better rates, but your money is locked in for a set time.

Budget and Inflationary Pressures Effect

The recent Autumn Budget, introduced by Chancellor Rachel Reeves, has added £70 billion to government spending, which might push up inflation. This extra spending, along with changes like raising the National Living Wage and higher National Insurance contributions, could slow down future rate cuts, as these changes might cause prices to rise.

The Bank of England is being careful, aiming to cut rates slowly while keeping inflation in check. With global uncertainties, like changes in the US economy, the Bank has said any future rate cuts will be gradual and cautious. The recent cut to 4.75% brings some relief for mortgage holders, but savings rates will probably keep dropping. As inflation is expected to rise, the Bank plans to lower rates carefully to balance economic stability with making things more affordable for households.

Mark
Mark

Mark is a versatile writer with a passion for technology, business, and community advocacy. He delivers practical advice on navigating scholarships, financial aid, and tax policies. His expertise spans financial assistance, healthcare navigation, and educational opportunities helping readers.

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