The Bank of England is widely anticipated to lower interest rates this Thursday, reducing the base rate from 4.25% to 4%. If confirmed, it would mark the fifth cut in a year and bring borrowing costs to their lowest since March 2023. While this move could offer relief to mortgage holders, it’s likely to bring further disappointment for savers.
Falling rates would ease monthly payments for some homeowners – for instance, a £250,000 standard variable mortgage over 25 years could see a £40 monthly saving. However, savings accounts are expected to offer lower returns, with average interest dropping from 3.9% last August to 3.5%. Financial analyst Rachel Springall warned that the outlook for savers is worsening as base rates decline.
Despite inflation still sitting above the Bank’s 2% target – reaching 3.6% in June – signs of a cooling labour market are influencing the decision. Unemployment is creeping up, job vacancies are down, and wage growth is slowing. These indicators suggest inflationary pressure may begin to ease in the months ahead.
Alongside its rate decision, the Bank will release updated economic forecasts. With no growth in April and May, the government may face a widening financial gap, increasing the likelihood of tax hikes in the Autumn Budget.
