Date Published 26 July 2024
Currently the Bank of England has been at a 16-year high of 5.25% base rate. This is expected to be dropped to 5% as of August. The majority of economists surveyed, 49 out of 60, estimated this decrease. The interest rate decrease will be the first one after 14 consecutive hikes for the Bank of England. The last interest rate cut occurred in March 2020, coinciding with the onset of the COVID pandemic in the UK.
In June, the Bank of England voted 7-2 to maintain the 5.25% level. In recent weeks, many lenders have aligned their mortgage rates with swap rates and anticipated a cut by the BoE. One economist, Allan Monks now suggests "We look for a 25-basis point rate cut at next week's meeting, although the call appears much closer than it did several weeks back. The case for lower rates is far from clear. If rates are lowered in August, it looks likely to happen on a close 5-4 vote'.
A new report as well from the Institute for Fiscal Studies showed the rise in borrowing costs had hurt more people than widely assumed because of limitations in official household income data. This claims that rising mortgage rates have pushed around 320,000 people into poverty, almost 100,000 more than suggested by official statistics.
In previous months, there was a contrast in views between markets and economists, as market participants were anticipating a decrease while economists were predicting no change. In another context, the impact of the anticipated reduction in interest rates is becoming evident. A major mortgage provider, Nationwide, revealed that they are now providing a five-year fixed-rate mortgage deal at less than 4%.
Hopefully we can see the interest rates decrease as the rises were initially brought up by the BoE in an attempt to reduce inflation. The initial plan was to bring inflation down to 2%, but even whilst inflation has reached this low over the last 2 months, the bank has kept its rates at 5.25%.
