The Bank of England is set to announce its base rate decision on Thursday, August 7, with a reduction to 4% widely anticipated. This adjustment, if confirmed, would be the first time since March 2023 that the rate has reached this level. Experts suggest that such a cut could provide some relief to mortgage holders, as well as offer a more favorable environment for those with variable-rate loans.
According to GB News, the move reflects ongoing efforts by the Bank to manage inflation and economic growth, although specific details on the committee’s vote remain uncertain until the official announcement.
Current Economic Landscape and Rate Decisions
The current base rate stands at 4.25%, down from a peak of 5.25% in August 2024. This reduction comes after a series of cuts in recent months, as the Bank aims to balance inflation control with economic growth. While the job market is showing signs of weakness, with unemployment reaching 4.7% in July, the Bank faces mixed economic signals.
Divergent Views Within the Bank of England’s Committee
Economists predict a divided vote among the nine members of the Monetary Policy Committee. Five members are expected to support the quarter-point reduction, while others may argue for a more significant cut. Key figures such as Chief Economist Huw Pill are expected to vote for holding rates steady, while others, like Swati Dhingra and Alan Taylor, might push for deeper reductions.
The Balancing Act: Inflation vs. Employment
Inflation remains a critical issue, with prices rising by 3.6% in June, above the Bank’s 2% target. Services inflation is particularly concerning, with sectors such as hospitality and transport experiencing sustained price growth. While rising unemployment could help ease inflationary pressures, the Bank must tread carefully to avoid stoking inflation further.
Market Expectations and Future Outlook
Markets are divided on whether the Bank of England will continue cutting rates into the end of the year. Some analysts suggest this reduction could signal the end of the current easing cycle, while others predict further cuts later in 2025 and beyond. This uncertainty highlights the challenges the Bank of England policymakers face as they navigate the complex economic landscape.
Mortgage Rates and Consumer Impact
With the potential rate cut, mortgage rates are expected to decrease slightly, offering some relief to borrowers. The average two-year and five-year fixed mortgage rates are currently at 4.52%, and a further reduction could make home loans more affordable. However, experts warn that such reductions may not last, as lenders are cautious about cutting rates too quickly.
