{"id":103639,"date":"2025-02-07T08:50:00","date_gmt":"2025-02-07T08:50:00","guid":{"rendered":"https:\/\/en.econostrum.info\/uk\/?p=103639"},"modified":"2025-02-07T08:47:20","modified_gmt":"2025-02-07T08:47:20","slug":"bank-of-england-cuts-interest-rate-mortgages","status":"publish","type":"post","link":"https:\/\/en.econostrum.info\/uk\/bank-of-england-cuts-interest-rate-mortgages\/","title":{"rendered":"Bank of England Cuts Interest Rates to 4.5%-What It Means for Mortgages"},"content":{"rendered":"\n<p>The <strong>Bank of England<\/strong> has lowered its base interest rate from <strong>4.75% to 4.5%<\/strong>, marking its lowest level since June 2023. While the decision is expected to provide relief for some borrowers, the overall impact on mortgages, savings, and economic growth remains mixed. The central bank also <strong>halved its growth forecast for 2025<\/strong>, citing ongoing economic uncertainty.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">How the Rate Cut Affects Mortgages<\/h2>\n\n\n\n<p>For homeowners, the effect of the <strong>interest rate reduction<\/strong> depends largely on the type of mortgage they hold.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Tracker mortgages<\/strong>: Those on <strong>tracker mortgages<\/strong>, which move in direct relation to the Bank of England&#8217;s base rate, will see an immediate reduction in borrowing costs.<\/li>\n\n\n\n<li><strong>Standard variable rate (SVR) mortgages<\/strong>: Lenders have discretion over SVR adjustments. Some, such as <strong>Santander<\/strong>, have already announced reductions, with its SVR set to drop to <strong>6.75%<\/strong>.<\/li>\n\n\n\n<li><strong>Fixed-rate mortgages<\/strong>: Borrowers on <strong>fixed-rate deals<\/strong> will see no immediate change in repayments. However, as lenders adjust their rates to reflect market expectations, future fixed-rate mortgage deals may become more competitive.<\/li>\n<\/ul>\n\n\n\n<p>The mortgage market had already anticipated multiple rate cuts throughout <strong>2025<\/strong>, leading some lenders to reduce rates ahead of this decision. The Yorkshire Building Society, for example, recently cut its fixed mortgage rates by up to <strong>0.31 percentage points<\/strong>.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>629,000<\/strong> homeowners on <strong>tracker mortgages<\/strong> will see an <strong>average reduction of \u00a329<\/strong> in their monthly repayments.<\/li>\n\n\n\n<li><strong>Nearly 700,000<\/strong> people on <strong><a href=\"https:\/\/en.econostrum.info\/uk\/edfs-new-energy-tariff-100-savings\/\" target=\"_blank\" data-type=\"post\" data-id=\"102891\" rel=\"noreferrer noopener\">standard variable rate<\/a> (SVR) mortgages<\/strong> will have to wait to see if their lender passes on the rate cut.<\/li>\n<\/ul>\n\n\n\n<p>While <strong>tracker mortgage holders<\/strong> will see immediate reductions in repayments, those on <strong>standard variable rates<\/strong> must wait for lender decisions. <strong>Fixed-rate mortgage rates<\/strong> may adjust over time, depending on market conditions and future rate changes.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Implications for Savings Accounts<\/h2>\n\n\n\n<p>For savers, <a href=\"https:\/\/en.econostrum.info\/uk\/bank-of-england-likely-to-cut-interest-rates\/\" target=\"_blank\" data-type=\"post\" data-id=\"100931\" rel=\"noreferrer noopener\">the <strong>rate cut<\/strong><\/a> is expected to lead to lower returns on <strong>easy-access accounts<\/strong> and non-fixed savings products.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Instant-access savings<\/strong>: These accounts are not explicitly tied to the base rate but often follow its movement. Savers may see a gradual reduction in rates.<\/li>\n\n\n\n<li><strong>Fixed-rate savings accounts<\/strong>: Interest rates on new <strong>fixed-term savings products<\/strong> had already begun to decline, reflecting expectations of future cuts. Currently, a <strong>one-year fixed-rate bond<\/strong> offers an average return of <strong>4.2%<\/strong>, which is below the new base rate.<\/li>\n<\/ul>\n\n\n\n<p>Some banks, particularly newer financial institutions, continue to offer <strong>higher returns<\/strong> to attract depositors. <strong>Raisin UK<\/strong>, for example, is offering <strong>4.67%<\/strong> on a one-year fixed-rate bond.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">The Broader Economic Outlook<\/h2>\n\n\n\n<p>Despite<a href=\"https:\/\/en.econostrum.info\/uk\/report-warns-labour-disability-reductions\/\" target=\"_blank\" data-type=\"post\" data-id=\"102842\" rel=\"noreferrer noopener\"> the <strong>rate reduction<\/strong><\/a>, the <strong>Bank of England<\/strong> has <strong>lowered its UK economic growth forecast for 2025<\/strong> from <strong>1.5% to 0.75%<\/strong>.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The decision reflects concerns about <strong>persistent inflationary pressures<\/strong>, which are expected to increase later this year due to <strong>rising energy and water costs<\/strong>.<\/li>\n\n\n\n<li>Inflation is now projected to reach <strong>3.7%<\/strong> before gradually declining to the <strong>2% target by the end of 2027<\/strong>.<\/li>\n\n\n\n<li>The <strong>weaker growth forecast<\/strong> raises concerns over economic stability, with some analysts suggesting that <strong>future interest rate cuts<\/strong> may be limited.<\/li>\n<\/ul>\n\n\n\n<p><a href=\"https:\/\/www.bankofengland.co.uk\/about\/people\/andrew-bailey\/biography\" target=\"_blank\" data-type=\"link\" data-id=\"https:\/\/www.bankofengland.co.uk\/about\/people\/andrew-bailey\/biography\" rel=\"noreferrer noopener\">Governor <strong>Andrew Bailey<\/strong><\/a> emphasised that while further reductions are likely, the Bank will assess the situation <strong>\u201cmeeting by meeting\u201d<\/strong> due to global economic uncertainties. The UK government has reiterated its commitment to <strong>economic growth<\/strong>, with Prime Minister <strong>Sir Keir Starmer<\/strong> stating that the revised forecast strengthens the need for <strong>investment in infrastructure and housing<\/strong>.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>More Detailed Economic Growth and Inflation Forecasts<\/strong><\/h3>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The <strong>UK GDP forecast for 2025<\/strong> has been revised <strong>down from 1.5% to 0.75%<\/strong>.<\/li>\n\n\n\n<li>Growth expectations for <strong>2026 and 2027<\/strong> have been revised <strong>up to 1.5%<\/strong> (from <strong>1.25%<\/strong> previously).<\/li>\n\n\n\n<li>Inflation is expected to <strong>rise to 3.7%<\/strong> later this year and is <strong>not projected to return to 2% until the end of 2027<\/strong>.<\/li>\n\n\n\n<li>The UK economy recorded <strong>zero growth<\/strong> in <strong>Q3 2024<\/strong>, and growth for <strong>Q1 2025<\/strong> is now projected at just <strong>0.1%<\/strong> (down from <strong>0.3%<\/strong> in earlier forecasts).<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Market Reaction and Future Expectations<\/h2>\n\n\n\n<p>Following the <strong>interest rate cut<\/strong>, the British pound initially declined before stabilising. Analysts are divided on the Bank\u2019s next steps:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Some predict that <strong>additional cuts<\/strong> could come later in the year, particularly if economic growth remains sluggish.<\/li>\n\n\n\n<li>Others point to <strong>inflation risks<\/strong> and argue that further reductions may not be as aggressive as markets had previously anticipated.<\/li>\n<\/ul>\n\n\n\n<p>Reactions from banks and financial markets<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Santander<\/strong> has confirmed that it <strong>will fully pass on the rate cut<\/strong> to variable-rate mortgage customers from <strong>3 March 2025<\/strong>.<\/li>\n\n\n\n<li>The <strong>British pound initially fell<\/strong> following the rate announcement but later stabilised.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">External Factors Influencing Monetary Policy<\/h2>\n\n\n\n<p>Beyond <a href=\"https:\/\/en.econostrum.info\/uk\/uk-inflation-drops-to-2-5\/\" target=\"_blank\" data-type=\"post\" data-id=\"103571\" rel=\"noreferrer noopener\">domestic monetary policy<\/a>, several global and policy-related factors could influence the economic outlook:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Higher energy and water costs<\/strong> are expected to push inflation up later this year.<\/li>\n\n\n\n<li><strong>Potential trade tariffs in the US<\/strong> could contribute to inflationary pressures in the UK.<\/li>\n\n\n\n<li>The <strong>increase in National Insurance contributions for employers<\/strong>, introduced in the last Budget, has raised concerns among businesses about investment and job creation.<\/li>\n<\/ul>\n\n\n\n<p>For borrowers and savers, the key takeaway is that while some relief is coming, <strong>economic uncertainty remains high<\/strong>, making financial planning increasingly important in the months ahead.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Bank of England\u2019s latest interest rate cut to 4.5% brings changes for homeowners and savers. How will it impact borrowing costs and economic growth?<\/p>\n","protected":false},"author":9,"featured_media":103640,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[44],"tags":[],"class_list":["post-103639","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news","generate-columns","tablet-grid-50","mobile-grid-100","grid-parent","grid-33","no-featured-image-padding"],"_links":{"self":[{"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/posts\/103639","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/comments?post=103639"}],"version-history":[{"count":1,"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/posts\/103639\/revisions"}],"predecessor-version":[{"id":103641,"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/posts\/103639\/revisions\/103641"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/media\/103640"}],"wp:attachment":[{"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/media?parent=103639"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/categories?post=103639"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/en.econostrum.info\/uk\/wp-json\/wp\/v2\/tags?post=103639"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}