Bank of England Cuts Base Rate to 4.75%

The Bank of England’s Monetary Police Committee (MPC) has made its second rate cut this year, lowering the Bank Rate by 0.25% to 4.75%. Eight of the nine committee members supported the reduction, while one member favoured a one-month delay.

According to the MPC minutes, the decision was influenced by the need to “squeeze remaining inflationary pressures out of the economy.” The move was widely anticipated by the markets, following a drop in inflation to 1.7% in September – the first time since April 2021 that it has fallen below the government’s 2% target.

Impact of the Autumn Budget:

In the Autumn Budget, Chancellor Rachel Reeves announced increases in minimum wages and tax hikes, among other changes that market analysts expect to push inflation up. MPC Governor Andrew Bailey commented that the Budget changes would likely have “some upward effect on inflation,” with inflation projected to reach around 2.5% in 2025.

The MPC minutes noted lingering uncertainties around the labour market, as wage growth remains higher than expected. They also highlighted that the inflationary effects of the Budget will depend on how quickly increased costs translate into prices, wages, and employment. The MPC emphasized a “gradual approach to removing policy restraint,” intending to maintain a restrictive policy stance to support inflation returning to the 2% target over the medium term.

Implications for Mortgage Rates:

For borrowers with a tracker or variable-rate mortgage, lenders are expected to adjust rates on existing and new mortgages in line with the Bank Rate reduction over the coming days. However, those on fixed-rate mortgages won’t see any immediate change until their current deal expires. For borrowers looking to secure a fixed-rate mortgage, this cut may not immediately impact pricing, as lenders also consider factors like swap rates – which reflect future interest rate expectations – and the Budget’s influence on inflation.

Outlook:

The MPC’s decision to lower the Bank Rate, together with the favourable inflation figures in September, has been positively received across the country. The previous rate cut in August 2024 improved market confidence, boosting activity in the housing sector.

While this latest rate cut has widely anticipated, future reductions are seen as less certain due to the impact of the October 30th Budget. Market sentiment now suggests that the Bank of England may hold off on any further rate cuts for the remainder of the year.

The Importance of Expert Guidance

Given the ever-changing market conditions, seeking the assistance of a mortgage consultant is more important than ever. With their expertise, you can navigate these fluctuations effectively and find the best possible mortgage options tailored to your needs.

Our experienced mortgage consultants are ready to assist you with personalised guidance every step of the way. For an initial consultation, speak with our experts or call us at 01628 564631. We're here to help you navigate your mortgage journey with informed advice and care.

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The information contained within was correct at the time of publication but is subject to change.

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Bank of England cuts interest rate to 4.75% – Mortgage Strategy