In a widely anticipated decision, the Bank of England has today (7th August) announced a 25 base point reduction in Base Rate, down to 4%. This move marks the latest in a series of cautious reductions – the third quarter-point reduction to come from the five meetings this year.
What has driven the cut?
The latest reduction is likely a result of the Bank’s ongoing efforts to balance controlling inflation while boosting a slow economy. The decision comes against a backdrop of weak economic data and a loosening in labour market conditions, with UK GDP experiencing a 0.1% contraction in May.
The UK saw a fall in GDP in both April and May, with forecasts suggesting an upcoming period of slow growth. Ongoing external factors such as heightened global uncertainty and impact from US trade tariffs could further dampen growth. This lack of economic momentum is a likely trigger for the Bank to take steps to stimulate the economy.
Unemployment in May rose to 4.7%, their highest level since June 2021, with job vacancies dropping below pre-pandemic levels. A weak job market reduces the risk of higher wages fueling inflation, allowing more room for the Bank or maneuver on rates.
Bank of England Governor Andrew Bailey has stated that higher inflation needs to be weighed against threats to growth, and this is the fine line the Bank are currently walking.
What does this mean for mortgage borrowers?
As is always the case with Base Rate reductions, it is important to note that lenders forecast changes to rates ahead of time. This means that in the weeks leading up to this announcement, many of the major lenders have been gradually reducing rates to meet the anticipated reduction.
For those on, or looking to remortgage to, a fixed-rate mortgage, this means that little to no change is to be expected as an immediate result of the Bank’s announcement.
However, those on mortgage products linked more directly to base rate, such as tracker or variable rate mortgages, can expect to see a slight reduction in their monthly repayment amount.
What should we expect next?
General market consensus is for rates to continue to decline in the medium term, albeit with the caveat that reductions are likely to be gradual and considered as inflation risks continue.
Longer term, economists predict that we may see rates as low as 3% in 2026. Ongoing weakness in the labour market is likely to drive inflation back down towards the Bank’s 2% target, which should provide the MPC with opportunities to ease further.
The outcome of the upcoming Autumn Budget is yet to be seen, but changes to fiscal policy may add further pressure on the Bank to cut rates.
Ultimately, the Bank has been clear on its message: rates are moving down, but the journey will be slow, data-driven and subject to change.
How can Cooper Associates Mortgages help?
Whether you’re looking to buy your first home, remortgage, or simply wish to explore all of the options available, Cooper Associates Mortgages’ team of friendly, expert advisers are here to help.
At a time where the future of rates is uncertain, we are here to help. We’re committed to securing you the best and most suitable deal for you, and should a better rate become available once you’ve locked your rate in, we’ll switch you (provided you are more than 14 days from completion).
Our team of advisers offer friendly, holistic, whole-of-market advice, tailored to your specific personal circumstances and financial goals. We’re here to guide you through the entire mortgage landscape in a clear and confident way.
Best of all, we’re completely fee-free.
Get in touch today to discover how Cooper Associates Mortgages can help you.
