Experts believe that the Bank of England will lower interest rates from 4.75% to 4.5% when it makes its announcement next week. With additional rate cuts anticipated in 2025, this action coincides with falling inflation and indications of economic slowdown.
Since the judgment may have major effects on pensions, savings, and mortgages in the coming months, experts are keeping a close eye on the issue. The effect on the economy is still up for question, even if markets seem highly assured of this move.
Interest Rate Cut: A Response to Slowing Economy and Inflation
The possible interest rate reduction by the Bank of England is indicative of larger economic patterns. The UK’s economy appears to be stagnating, and inflation has slowed. Because of this change, some policymakers are pushing for a drop to spur growth; at the most recent meeting, three members of the Bank’s Monetary Policy Committee supported a cut.
According to Susannah Streeter, head of money and markets at Hargreaves Lansdown, a flatlining economy and the recent decline in inflation make a rate decrease the ideal scenario. Streeter stated, “The scene has been set for a rate cut next week,” referring to the state of the economy that may result in additional rate cuts in 2025.
This action is thought to be a component of the Bank’s continuous attempts to control inflation without causing the economy to enter a more severe slump. Although the rate cut might offer some respite, several analysts warn that it is still uncertain how it would affect economic development in the long run.
Potential Impact on Savings, Mortgages, and Pensions
For savers, a reduction in interest rates could result in lower returns on savings accounts. Banks are likely to follow the Bank’s move by lowering the interest rates they offer on savings, particularly for easy-access accounts.
Mark Hicks, head of active savings at Hargreaves Lansdown, pointed out that much of the expected rate cut has already been priced into savings products. This means savers may not see a substantial shift immediately, but it could still make a difference in their returns over time.
Annuities are still a good choice for pensions, and some analysts predict that the market will not be much impacted by the expected rate decrease. According to Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, those buying annuities now are still getting good returns; an investment of £100,000 made at age 65 could produce about £7,492 a year.
If the rate cut is approved, homeowners with variable or tracker-rate mortgages may see a reduction in their monthly payments. The head of personal finance at Hargreaves Lansdown, Sarah Coles, Head of Personal Finance at Hargreaves Lansdown, cautioned that people with fixed-rate mortgages would not have an immediate impact. The effects of rate increases are already evident in the state of the market.
