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The Bank of England is anticipated to lower interest rates soon, potentially bringing the benchmark Bank rate down to its lowest point since February 2023. Financial experts largely predict that the Monetary Policy Committee (MPC), consisting of nine members, will vote to reduce the rate from 4% to 3.75%. However, this decision is expected to be somewhat divided rather than unanimous. If implemented, this would mark the sixth time the Bank has cut rates since August of last year.
This key rate influences both borrowing costs for consumers and the income savers receive on their deposits. The MPC’s primary objective remains to maintain inflation at approximately 2%, using adjustments to the Bank rate as its main policy instrument. The Office for National Statistics recently released inflation figures showing a steeper-than-expected decline in the Consumer Prices Index (CPI) inflation to 3.2% in November, down from 3.6% in October.
Although inflation still exceeds the Bank’s target, the combination of falling inflation, rising unemployment, and sluggish economic growth is likely encouraging the MPC to consider reducing interest rates. At their most recent gathering in November, the committee was nearly evenly split, with four members supporting a rate cut and five opting to maintain the current level. During that meeting, the Bank’s governor expressed a preference to observe whether inflation would continue its downward trend before making further adjustments.
Regarding the potential effects on households, approximately 500,000 mortgage holders whose borrowing costs are directly tied to the Bank rate could see their monthly payments decrease by about £29 if a 0.25 percentage point cut is applied. Another half-million homeowners on standard variable mortgage rates might experience a smaller reduction, around £14 per month, assuming lenders pass on the cut. Although most mortgage customers are on fixed-rate agreements—and those fixed rates have been trending lower in anticipation of a bank rate cut—any reductions in mortgage rates could also alleviate financial strain for landlords and possibly reduce pressure to raise rents. On the downside, savers can expect returns on their savings accounts to drop further, with the current average rate on easy-access accounts standing at 2.56%
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