In line with expectations, interest rates are anticipated to be lowered on Thursday, with further decreases projected later in the year. The Bank of England is likely to make a cut to 4.25% from 4.5%, though the possibility of no change or a larger reduction still exists. If the reduction is confirmed, it would mark the fourth rate decrease from last year’s peak of 5.25%, and the second cut this year. This move is expected to make it cheaper for businesses and individuals to borrow money, but it may lead to reduced returns for savers.
The announcement regarding the interest rates is scheduled for 12:02 BST, following a two-minute silence to commemorate VE Day. The Bank’s Monetary Policy Committee (MPC) will closely monitor the rate of price increases in the UK, as indicated by inflation. The primary objective of interest rates is to ensure that the annual inflation rate remains at or near the target of 2%. Despite the current inflation rate being 2.6% in the 12 months leading up to March, additional costs such as domestic energy prices are expected to cause the rate to rise temporarily.
Global economic uncertainty, particularly linked to President Trump’s tariff policy in the US, will also be taken into account by the MPC. Analysts suggest that Trump’s policy may create inconsistency and uncertainty, potentially leading to decreased growth and inflation. This, in turn, increases expectations of more interest rate cuts from the MPC throughout the year. The reaction to these cuts has been reflected in the markets, impacting mortgage pricing for the majority of homeowners with a mortgage that have a fixed-rate deal. Mortgage rates have been adjusted in recent weeks, and while lenders have factored in a cut in interest rates, further reductions in mortgage rates are not guaranteed.
For individuals like medical student Samren Reddy, who is saving for a first home, a decrease in interest rates could shape their future financial decisions. While lower rates may result in cheaper mortgages, Samren emphasizes that the economic pressures of day-to-day living could impede the benefits of these reductions. Savings providers are also likely to lower the interest provided, particularly on instant-access accounts, following a base rate cut. Moreover, mortgage-holders with tracker mortgages, such as Vanda, could potentially see a reduction in their monthly repayments if the Bank rate is decreased. Vanda, who recently experienced redundancy, highlights the impact a rate decrease could have on her financial situation
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