The Bank of England is expected to announce a reduction in interest rates later today, marking a significant move to support the UK economy as it faces mounting challenges. The anticipated cut of 0.25 percentage points aims to alleviate financial pressure on mortgage holders and stimulate economic growth. With the current economic slowdown and inflation rates showing signs of stabilization, this decision comes at a crucial time.
In recent months, approximately 629,000 mortgage holders with tracker deals have keenly observed the Bank's interest rate decisions. A similar number of householders with variable rate deals are also likely to benefit from the expected rate cut, which could reduce their monthly repayments by about £29. The anticipated decrease in the base rate will place lenders under pressure to adjust their rates accordingly, offering potential relief to many borrowers.
The Bank's decision to consider an interest rate cut is primarily driven by its role in controlling inflation. The inflation rate has recently fallen to 2.5% in the year leading up to December, providing the Bank with some room to maneuver. However, the UK's economic growth in November was less than expected, and further slowdowns are anticipated due to rising costs beginning in April.
Bank of England Governor Andrew Bailey emphasized the need for a measured approach to interest rate adjustments.
"We can't commit to when or by how much we will cut rates in the coming year." – Andrew Bailey
The Bank plans to consider further cuts once price rises are more under control. Despite the challenges, wage growth has surpassed the Bank's forecasts, adding complexity to its decision-making process.
Paul Dales, an economist, highlighted the critical balance the Bank must maintain between supporting economic activity and managing inflation.
"Supporting an economy that appears to have ground to a complete halt and preventing inflation from taking off again." – Paul Dales
While external factors such as tariffs imposed by former U.S. President Trump are unlikely to significantly impact UK interest rates, domestic economic indicators remain pivotal in shaping the Bank's policies.
At noon today, the Bank will announce its decision on interest rates and release a report detailing its inflation outlook for the coming months. This announcement is highly anticipated as it will provide insight into how the Bank plans to navigate the current economic landscape.