The anticipated decision comes as economic pressures have begun to shift, with inflation easing and concerns about job security and economic growth taking priority. This change marks a significant shift in the Bank’s approach after months of holding rates high to curb inflation.
The Implications for Borrowers: Lower Rates, Lower Payments
For homeowners and potential buyers, a reduction in the base rate would be a welcome relief. According to experts, such a cut would likely lead to a fall in mortgage rates. This is crucial for those with fixed-rate or tracker mortgages, as lower base rates typically lead to more competitive rates from lenders. First-time buyers, in particular, could benefit, gaining access to cheaper mortgage deals.
Mortgage providers, including Barclays, HSBC, and Santander, have already been reducing rates in anticipation of this move. As the base rate affects the cost of borrowing, these reductions mean that monthly mortgage payments for many homeowners could decrease. For those remortgaging, this provides an opportunity to lock in a more affordable rate, especially with two-year and five-year fixed deals already showing some of the lowest rates since September 2022.
However, while borrowers stand to benefit, the housing market could also see a boost, with more people able to enter the property ladder or purchase homes. If the rate cut leads to increased demand, property prices could continue to rise, albeit more slowly than the boom seen in previous years.
Savers: A Different Story
While borrowers may rejoice, savers could find themselves facing a less favourable outlook. According to financial experts, when the Bank of England lowers the base rate, savings account interest rates typically follow suit, falling in line with the Bank’s decision. This would likely reduce the returns on savings, which have been relatively attractive in recent months.
For those looking to maximise their returns before the rate cut, financial experts suggest locking money into fixed-term savings accounts, such as ISAs, which offer guaranteed rates for a set period. A popular choice is the Tembo Money 1-year Cash ISA, which is currently offering an interest rate of 4.3%. Although this rate is above average, savers are advised to act quickly before any changes are made to the broader interest rate environment.
The expected rate cut comes at a critical time. With inflation easing and growth slowing, the Bank of England faces increasing pressure to stimulate the economy without reigniting inflationary pressures. The interest rate cut is seen as a tool to encourage spending and investment by making borrowing cheaper, while also addressing concerns over economic stability.
However, there are risks involved. As the economy adjusts to lower rates, the balance between controlling inflation and stimulating growth will be delicate. The Bank’s decision, therefore, will be watched closely by both the financial sector and the public.
