Interest rates have a major impact on money and finances in the UK
Interest rates are expected to be cut by the Bank of England for the second time this year. Many analysts predict that the benchmark rate will fall from the current level of 5% to 4.75% today, November 7. The announcement will be made at 12pm today.
Rates were last cut by 0.25% in August, a decision that was driven by a slump in petrol prices and lower airfares. Since then, the latest official data showed UK Consumer Prices Index (CPI) inflation fell to 1.7% in September, the lowest level since April 2021.
Experts said inflation falling below the Bank’s 2% target level will encourage policymakers to continue easing interest rates, releasing some more pressure on borrowers and mortgage holders across the UK.
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Andrew Goodwin, chief UK economist for Oxford Economics, said the outcome of the Bank’s Monetary Policy Committee (MPC) meeting “looks virtually certain” although some members could still opt for rates to be kept the same.
The base rate dictates how much interest you pay when you borrow money, so mortgages and credit card rates usually get more expensive when they go up. This means a cut in the base rate will be good news for homeowners who are on a variable deal.
After the base rate cut in August, mortgage deals have been slowly on the way down, after reaching a 15-year high of 6.66% for the average two-year fixed rate deal in July 2023. However, when the base rate goes down, savings rates also usually go down.
The Office for Budget Responsibility (OBR) said the sharp increase in spending will contribute to higher inflation, although it will also help drive stronger economic growth. Inflation is forecast to average 2.5% this year and 2.6% next year before coming down
James Smith, developed market economist for ING, said: “The Budget won’t change the Bank’s decision to cut rates again this week. But it does question our long-held view that rate cuts will speed up from now on.”
She continued: “The risk is that this happens later, and the Bank decides to keep rates on hold again in December. A cut at the final meeting of the year looks fairly 50:50, and a lot will depend on the two inflation reports we get between now and Christmas.”