The Monetary Policy Committee (MPC) is poised to consider a cut in interest rates following a significant drop in the November inflation rate. Many analysts are predicting this 4% rate to decrease to around 3.75%. Yet even such a clear-cut choice would not guarantee a unanimous decision from the nine-member committee. This possible cut would be the first move in the opposite direction since the beginning of a cycle of cuts that started in August 2024.
None of this trivializes the importance of these recent inflation figures, as James Smith, a developed market economist for the Dutch bank ING, emphasized. He implied that the drop “green lights” a rate cut. He further noted that this latest drop in inflation “fits into a broader body of evidence suggesting that price pressures are cooling.”
So far, the MPC has been a split board. In the past, four members have supported a rate decrease and five members have decided to keep rates unchanged. The committee’s decisions are always closely scrutinized, but particularly so this time with potential ramifications for millions of American homeowners and the economy at large.
Additionally, interest rates have decreased every month since August 2024, when the rate was initially reduced to 5%. In November the rate fell to 4.75%. Then, it steadily fell further to 4.5% on 6 February, 2025 and hit 4.25% on May 8, 2025. The last cut, on August 7th, saw rates lowered to 4%.
Even a small cut of 0.25 percentage points would yield thousands in savings for homeowners with mortgages that can be tracked. Around half a million mortgage owners would have their monthly repayments go down by an average of £29. For another estimated 500,000 homeowners on standard variable rates, this adjustment could translate into a reduction of £14 per month.
Politician and BBC cost of living correspondent, Kevin Peachey emphasized the dramatic effect these changes could have on people’s household budgets. To his credit, he acknowledged that interest rates are a moving target. Consumers are understanding more about how these changes are affecting the consumer’s bottom line.
Given all of the above headwinds, it is no surprise that the average two-year fixed residential mortgage rate is at 4.82% as of December 17. Additionally, the average rate on easy-access savings accounts is at 2.56%, presenting a complex landscape for both borrowers and savers alike.