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The UK is anticipating a cut in interest rates on Thursday, which could bring borrowing costs to their lowest levels in over two years. It is widely projected that the Bank of England will decrease interest rates from 4.25% to 4%, marking its fifth cut since last August and bringing rates to their lowest since March 2023. While this reduction could lower monthly mortgage expenses for certain homeowners, it also means smaller returns for savers.
Additionally, the Bank of England is set to reveal its economic forecasts, detailing a period where the economy did not grow in April and May, potentially resulting in a significant spending gap that the government may opt to address through tax increases in the Autumn Budget. Following this announcement, the Office for National Statistics will release data on the UK’s economic performance between April and June, building on the 0.7% growth seen in the first quarter of the year. If interest rates are trimmed, the monthly repayments on an average standard variable rate mortgage of £250,000 over 25 years could decrease by £40, according to Moneyfacts.
Despite inflation exceeding the Bank of England’s 2% target – with inflation rising to 3.6% in the year to June due to higher costs of food, clothing, air travel, and rail travel – interest rates are still expected to be lowered. The cooling UK employment market, characterized by a decrease in payrolls, lower vacancies, and a slight uptick in the jobless rate, could potentially impact inflation. Moreover, the annual growth in average regular earnings, excluding bonuses, slowed to 5% between March and May, with employers facing rising costs such as National Insurance Contributions and the national minimum wage hike
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