The Bank of England has once again voted to keep interest rates at 5.25 per cent – a 16-year high.
However, the minutes from the Bank’s most recent rate-setting committee suggest that they are looking to cut interest rates this August.
If true, this would be the first drop in borrowing costs for more than four years.
Recent figures revealed that inflation, eased to two per cent in May, hitting the Bank of England’s target. However, prices for certain items continued to rise faster than expected.
What the cut could mean for you
The reduced interest rate could be welcome news for some borrowers because it would decrease the expense associated with borrowing.
The most immediate impact you’ll notice is likely on your mortgage if you have a tracker or variable rate.
A tracker mortgage, for instance, mirrors movements in the Bank of England base rate, potentially lowering your mortgage repayments before your next payment is due.
Meanwhile, a variable mortgage adjusts according to your lender’s interest rate, which tends to reflect changes by the Bank of England.
It’s advisable to contact your lender to understand how your mortgage repayments will adjust if they haven’t already informed you.
If you have a fixed-rate mortgage, then the rate cut will not impact your payments, but if your deal is due to end soon, make sure you check the rates.
Mortgage rates are expected to come down when the Bank of England start cutting the base rate, so anybody looking to buy their first home should watch this closely.
However, typically when we see interest rates come down, house prices increase as buyer demand rises.
People with savings accounts may be hoping the Bank hold off on dropping interest rates for longer.
If you hold a fixed-rate account, your interest rate and savings will remain secure for now. However, if your savings are in other types of accounts, it’s probable that their earning potential will decrease over time.
We will find out whether the interest rates will fall at the next Bank Rate announcement on 1 August 2024.
If you’re unsure what the inflation rate change could mean for you, please contact us.
