The Bank of England has announced a 0.25 percentage point cut in its base interest rate, bringing it down to 5% from 5.25%. This is the first reduction in the base rate since March 2020, when it was slashed to 0.1% in response to the coronavirus pandemic. The base rate is the interest rate that the Bank of England charges to commercial banks for lending them money, and it influences the interest rates that banks charge to their customers for borrowing and saving.
Why did the Bank of England decide to cut the rate?
The decision to cut the rate was made by the Bank of England’s Monetary Policy Committee (MPC) today (01/08/24), which meets to review the economic outlook and set the appropriate level of monetary stimulus. The MPC said that the rate cut was necessary to support the recovery and ensure that inflation remains close to its 2% target in the medium term.
How will the rate cut affect households and businesses?
The rate cut will benefit homeowners who have mortgages that are linked to the base rate, such as base rate tracker mortgages. These borrowers will see their monthly payments go down. Standard variable rate (SVR) mortgage holders may see lenders reduce the rate, however this is not a guarentee.
We are unlikely to see any impact on fixed-rate mortgages as the big lenders have largely priced in a reduction in the past two weeks and have reduced rates by around 0.3%. However, some lenders may have waited for this announcement, so we may still see some rates come down but it will not be the dramatic impact some would hope to fixed rates.
The rate cut will also have an impact on businesses, especially those that rely on borrowing to invest and expand. These businesses may benefit from lower borrowing costs, which will improve their cash flow and profitability.
The rate cut may also have a negative effect on savers who have money in bank accounts that pay interest based on the base rate. These savers will see their returns diminish, as less interest will be earned.
Thomas Jackon, Managing Director of Cooper Associates Mortgages commented “This announcement is great for overall confidence in the housing market and for prospective movers, first-time buyers and those with a fixed-term mortgage coming to an end. Hopefully this is the start of more reductions to come.”
At Cooper Associates, once a mortgage offer is issued, if a better rate becomes available with your lender, we will always look to get the best possible rate prior to our clients completion*. Ensuring you have access to whole of market rates, and the best rate available and we are fee free.
To see how the base rate cut affects you and your mortgage affordability please do get in touch with one of our experienced advisers.
*Mortgages can only be switched more than 14 days prior to completion.
